The Chinese service sector expanded at the fastest pace in six months in April, easing concerns over the slowdown of the world's second largest economy amid poor manufacturing performance.
The headline HSBC business activity index rose to a six-month high of 54.1 in April from 53.3 in March. The index reading above 50 indicates expansion of the sector and a reading below 50 suggests contraction. The improvement was supported by the growth in new orders, which was the strongest in ten months.
The composite output index, that measures performance of both manufacturing and service sectors, rose to 51.4 from 49.9 in the preceding month. The data pointed to the strongest expansion of private sector new business since October 2011.
Despite a further rise in new orders, backlogs of work in the Chinese service sector fell marginally during April.
Employment in the Chinese service sector rose at the sharpest pace since November 2011, extending the current period of growth to 39 months, Markit said.
Input price inflation accelerated to the sharpest since August 2010 and this drove cost inflation at the composite level to the strongest in six months. Output charges at service providers was largely unchanged from March.
Optimism among service providers rose to the highest level in 12 months, backed by expectations of strong new order growth and better economic conditions.
The improvement in service sector performance along with the modest improvement within the manufacturing sector, confirms the view that the Chinese economy is likely to bottom out in the second quarter, HSBC chief economist Hongbin Qu said. "As inflation pressures remain contained, we expect further monetary easing to boost growth in the coming months," the economist added.
The manufacturing sector remained in contraction for a sixth successive month in April, according to the latest Markit/HSBC survey. However, this showed marked divergence from the official report which pointed to the accelerated growth in manufacturing.
Activity growth in the non-manufacturing sector slowed in April, according to the official survey carried out by the China Federation of Logistics and Purchasing (CFLP). The Chinese economy expanded at the weakest pace in nearly three years in the first quarter of 2012 with the gross domestic product expanding 8.1 percent year-on-year in the March quarter. The government targets 7.5 percent growth for the economy this year, weaker than the previous projection of 8 percent.