China Services Activity Improved In May: HSBC PMI

China's services activity in May grew at the fastest rate in 19 months, according to the HSBC Purchasing Managers Index (PMI) released Tuesday.

The services PMI rose to 54.7 in May compared to 54.1 in April, alleviating to a certain degree the apprehensions about the soft global demand and the reduced real estate investment in the world's second biggest economy.

Growth of services activity picked up again in May, thanks to a sustained gain in new business. This should reduce the fears of a sharp growth slowdown. Going forward, the expected fast delivery of a mix of supportive measures should filter through to further boost services output and employment, said Hongbin Qu, chief economist for China and co-head of Asian Economic Research at HSBC.

This report comes when the China Federation of Logistics and Purchasing reported Sunday that the country's non-manufacturing sector grew at a slower pace in May compared to the previous month. While the HSBC services PMI covers the service sector only, which includes activities by real estate developers but excludes construction, the official index also covers construction, but excludes financial services.

New business wins were often cited by panelists as the main factor behind the latest increase in services output. Indeed, the pace of new order growth was marked, and the fastest since October 2010. Composite data meanwhile pointed to a marginal expansion of incoming new business, Hongbin Qu added.

The data also showed that though there was an increase in new orders, the backlogs of work in the Chinese service sector continued to fall in May.

Last week, China reported that its manufacturing activity grew at a slower pace in May compared to the previous month. There were fears of a hard landing after data showed in April that China's economy had slowed down to 8.1 percent in the first quarter, down from 8.9 percent in the fourth quarter of 2011. Beijing is targeting a growth rate of 7.5 percent this year.

Meanwhile, it was reported earlier that China's inflation rate slowed in April from the previous month, showing signs that price pressure was gradually diminishing to make room for monetary easing.