MARKET REPORTS 

China services sector gauge drops off in July

The HSBC China services PMI hit 50.9 in June, a two-year low and down from the previous month’s 51.3, suggesting the industry contracted for the first time in almost four years in July. Reuters

China’s services sector shrank in June for the first time in almost four years as exporters saw business weaken after a trade spat with the United States, a private survey showed.

The HSBC China services PMI hit 50.9 in June, a two-year low and down from the previous month’s 51.3, suggesting the industry contracted for the first time in almost four years in July.

It added to signs of an economy that may be starting to lose momentum as new orders falter and policy tightening eats into inflation.

Hiring plans fell to their lowest in more than seven years, HSBC said.

“With China’s economy expected to be deleveraging throughout the year, we see little likelihood of any imminent rebound in employment,” said Joseph Tonanganel, senior economist for China at HSBC.

China’s services sector makes up about 60 percent of the economy, compared with about a third in the United States.

The official non-manufacturing Purchasing Managers’ Index released last week, however, showed the sector expanded at a slightly faster pace in May.

Sino-U.S. trade frictions have emerged as one of the biggest risks to China’s growth, the official survey showed.

Foreign trade hit a two-year low in April. China’s foreign trade numbers for May show a further slowdown, with exports contracting last month by a bigger-than-expected 2.8 percent.

In response, the government has rolled out an array of measures to promote domestic demand, including a planned 50 billion yuan ($7.19 billion) fund to help small firms increase their exports and tax cuts on smaller enterprises.

Credit has also been loosened to small companies, helping boost spending last month.

But against that backdrop, Chinese authorities are still expected to gradually step up their battle against high debt levels and repeated underperformance of the economy in recent years.

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