HSBC Purchasing Managers Index 2014

Embargoed until: 09:45 (BEIJING), 6 January 2014

HSBC China Services PMI

Business activity growth eases to marginal pace
Key findings: Business activity increases at the weakest rate since August 2011 New order growth remains historically weak Employment levels increase at the strongest pace in six months
Chinese service sector firms signalled the weakest expansion of business activity in 28 months during December. Growth of total new orders also eased over the month, though was modest overall. Meanwhile, staffing levels increased for the fourth month running in December, and at the strongest pace since June. After adjusting for seasonal factors, the HSBC China Services Business Activity Index posted 50.9 in December, down from 52.5 in November. This signalled only a slight increase in business activity in the Chinese service sector. Moreover, it was the weakest expansion of activity since August 2011. Although some firms commented that increased sales helped to raise business activity levels, others mentioned that relatively muted client demand dampened growth. Total new orders placed at Chinese service providers also rose at a slower pace in December. Though modest, it was the weakest rate of new order growth since June, and well below the series average. Conversely, staffing levels in Chinas service sector increased for the fourth successive month in December. Furthermore, the rate of job creation accelerated to a modest pace that was the strongest in six months. According to anecdotal evidence, S companies increased payroll numbers as part of planned company expansions. Following no change in November, backlogs of work fell during December. That said, the rate of depletion was only slight. Where a reduction of work-in-hand was noted, it was generally attributed to increased efforts to reduce outstanding business, as well as relatively weak growth of new orders. On the prices front, average input costs faced by Chinese service providers increased in December, extending the current trend to 50 months. That said, the rate of input price inflation eased from November to a modest pace. Higher staffing costs and energy prices were said to have been key drivers of inflation in the latest survey period. Selling prices set by Chinese service sector firms also increased over the month. However, the rate of increase was little-changed from November and only slight. Higher tariffs were linked by panellists to the passing on of increased costs to clients. Latest data signalled that service providers in China were optimistic regarding the 12-month business outlook in December, with 26% of survey respondents expecting activity to rise. That said, the degree of confidence remained historically weak, despite improving slightly from November. While forecasts of improved economic conditions boosted positive sentiment at some companies, concerns over future policy changes and increased market competition dampened growth expectations at others.

50 = no change on previous month

65

Increasing rate of growth

60

55

50

45

Increasing rate of contraction

2006

2007

2008

2009

2010

2011

2012

2013

The survey uses a methodology identical to the HSBC China Manufacturing PMI. The survey uses a panel of regularly participating companies to monitor trends in business conditions in the private sector services economy. The panel has been carefully selected to accurately replicate the true structure of the Chinese services economy. Questionnaires are dispatched at mid-month, requesting comparisons of the current situation with that of one month previously. Purchasing Managers Index and PMI are trade marks of Markit Economics Limited, HSBC use the above marks under licence. Markit and the Markit logo are registered trade marks of Markit Group Limited.

HSBC China Services PMI

Business Activity Index

Q. Please compare the level of business activity (i.e. gross income, chargeable hours worked, etc) in your company this month with the situation one month ago.
50 = no change on previous month, S.Adj. 70 65 60 55 50 45 40 Increasing rate of contraction Increasing rate of growth

% L o w er

% H ig h er

2006

2007

2008

2009

2010

2011

2012

2013

% S am e

The seasonally adjusted Business Activity Index signalled a further expansion of activity across Chinas service sector in December. That said, the rate of growth eased to a marginal pace that was the weakest since August 2011. According to anecdotal evidence, increased sales boosted activity at some firms, while other companies cited relatively weak new order growth.

New Business Index

Q. Please compare the level of new orders/business placed at your company (whether already fulfilled or not) this month with the situation one month ago.
50 = no change on previous month, S.Adj. 65 60 55 50 45 Increasing rate of contraction Increasing rate of growth

% L o w er

% H ig h er

2006

2007

2008

2009

2010

2011

2012

2013

% S am e

Firms operating in Chinas service sector continued to report an increased amount of new work in December. After adjusting for seasonal factors, however, the rate of new order growth eased to a six-month low. The weaker expansion of new order books was generally attributed by panellists to relatively subdued client demand.

Outstanding Business Index

Q. Compare the level of outstanding business (i.e. work in hand but not yet completed) in your company this month with the situation one month ago.
50 = no change on previous month, S.Adj. 55 Increasing rate of growth

% L o w er

% H ig h er

50

45

40

Increasing rate of contraction

2006

2007

2008

2009

2010

2011

2012

2013

% S am e

Following on from no change in November, backlogs of work at Chinese service providers fell in December. That said, the rate of depletion was only marginal, with fewer than 7% of firms reporting a reduced level of work-in-hand (comparably 4% saw an increase). A number of firms commented on increased efforts to reduce outstanding business, which was supported by lower-than-expected volumes of new work.

Employment Index
Q. Compare the number of people employed this month with the situation a month ago (treat two part as one full-time and ignore temporary labour).
50 = no change on previous month, S.Adj. 60 Increasing rate of growth

% L o w er

% H ig h er

55

50

45

Increasing rate of contraction

2006

2007

2008

2009

2010

2011

2012

2013

% S am e

Chinese service providers increased their staff numbers for the fourth successive month in December. After adjusting for seasonality, the rate of job creation quickened from the previous month to a moderate pace and was the strongest expansion of payroll numbers since June. Planned company expansions were cited as the key driver of employment growth in the latest survey period.
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6 January 2014

Prices Charged Index

Q. Compare the average prices charged by your company (e.g. prices charged per item or unit of time) this month with the situation one month ago.
50 = no change on previous month, S.Adj. 60 55 50 45 40 Increasing rate of deflation Increasing rate of inflation

% L o w er

% H ig h er

2006

2007

2008

2009

2010

2011

2012

2013

% S am e

Average tariffs set by Chinese service sector firms increased for the fifth consecutive month in December. That said, the rate of output charge inflation was little-changed from Novembers marginal pace. Anecdotal evidence suggested that firms raised their selling prices to pass on higher input costs to clients.

Input Prices Index

Q. Please compare the average prices paid by your company for all purchases, wages and salaries, etc. this month with the situation one month ago.
50 = no change on previous month, S.Adj. 65 60 55 50 45 Increasing rate of deflation Increasing rate of inflation

% L o w er

% H ig h er

2006

2007

2008

2009

2010

2011

2012

2013

% S am e

Chinese service providers saw a further increase in average input costs in December, as has been the case in each of the past 50 months. After adjusting for seasonality, however, the rate of input price inflation eased to a modest pace that was the joint-weakest in six months. Higher input costs were generally associated with increased energy and salary costs.

Business Expectations Index

Q. In twelve months time, do you expect overall activity at your business unit to be higher, the same or lower than now?
50 = no change over the next twelve months 100 90 80 70 60 50 Increasing optimism

% L o w er % H ig h er

% S am e

2006

2007

2008

2009

2010

2011

2012

2013

December data signalled that Chinese service providers were optimistic towards the 12-month business outlook, with 26% of panellists expecting activity levels to increase. However, the degree of positive sentiment remained historically weak, despite improving from the previous month. While forecasts of improving economic conditions are expected to support future activity growth, concerns over policy changes and increased competition dampened the confidence of other firms.

Notes on the Data and Method of Presentation

The China Services PMI covers hotels & restaurants, transport & storage, financial intermediation, renting & business activities, post & telecommunications and other services. Each response received is weighted each month according to the size of the company to which the questionnaire refers and the contribution to total service sector output accounted for by the sub-sector to which that company belongs. This therefore ensures that replies from larger companies have a greater impact on the final index numbers than replies from small companies. The results are presented by question asked, showing the percentage of respondents reporting an improvement, deterioration or no change on the previous month. From these percentages an index is derived such that a level of 50.0 signals no change on the previous month. Above 50.0 signals an increase (or improvement), below 50.0 a decrease (or deterioration). The greater the divergence from 50.0, the greater the rate of change signalled. The indexes are calculated by assigning weights to the percentages: the percentage of respondents reporting an "improvement/increase" are given a weight of 1.0, the percentage reporting "no change" are given a weight of 0.5 and the percentage reporting a "deterioration/decrease" are given a weight of 0.0. Thus, if 100% of the survey panel report an "increase", the index would read 100. If 100% reported "no change" the index would read 50 (100 x 0.5), and so on. Markit do not revise underlying survey data after first publication, but seasonal adjustment factors may be revised from time to time as appropriate which will affect the seasonally adjusted data series.

Warning
The intellectual property rights to the HSBC China Services PMI provided herein are owned by or licensed to Markit Economics Limited. Any unauthorised use, including but not limited to copying, distributing, transmitting or otherwise of any data appearing is not permitted without Markits prior consent. Markit shall not have any liability, duty or obligation for or relating to the content or information (data) contained herein, any errors, inaccuracies, omissions or delays in the data, or for any actions taken in reliance thereon. In no event shall Markit be liable for any special, incidental, or consequential damages, arising out of the use of the data. Purchasing Managers Index and PMI are either registered trade marks of Markit Economics Limited or licensed to Markit Economics Limited. HSBC use the above marks under license. Markit is a registered trade mark of Markit Group Limited. 3