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China service sector expansion drops to 4-mth lows

China service sector expansion drops to 4-mth lows
Activity in China's services sector grew at its slowest pace in four months in February, according to the Markit/Caixin purchasing managers' index (PMI).

While new businesses were expanding at a healthy rate, competition doesn’t allow companies to increase prices substantially despite surging inflation, the note said.

The February services PMI fell to 52.6 compared to 53.1 in January.

Despite the PMI being well above 50 points that divide contraction and growth, this is the slowest expansion since October, according to the researchers.

Experts point out this data may indicate a cooling down of China's economic growth and consumer demand.

While inflation in January rose to multi-year highs, Caixin noted that local businesses tried to keep prices from rising.

"Inflationary pressures seemed to have started to ease as price increases in both manufacturing and services continued to weaken," said Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group.

This week, Beijing is set to kick off annual parliamentary meetings, where officials will announce the growth target. It is possible the leaders will cut the growth goal, paying more attention to managing debt risks.

Economists are worried about the corporate debt bubble, rapidly growing in the world’s second-largest economy.

Last September, the Bank of England said: “credit growth in China continues to materially outpace GDP growth, and the level and growth of credit relative to GDP in China are very high by international standards.”

Beijing’s debt-to-gross domestic product (GDP) ratio has ballooned from 150 percent to more than 260 percent in a decade.

Chinese leaders are said to expect the economy to grow 6.5-7 percent this year.

"The Chinese economy is expected to maintain the growth momentum in the first quarter of this year. But signs of weakening may emerge from the second quarter," said Zhong.