New order increase buoys service sector

Though the service sector expanded at a slower pace in December, the growth in new orders in the sector is an indication of further economic stabilization, with more policy easing expected to be implemented in the coming quarters, economists said on Monday.

The Caixin China General Services Business Activity Index stood at 52.5 in December, one percentage point lower than that of November, suggesting that China's service sector grew at a slower pace in that month.

The new order index, a sub index of the Caixin service PMI index, continued to rebound in December, hitting a three-month high and indicating improved demand, according to a survey jointly released by media group Caixin and information provider IHS Markit.

Surveyed companies in the service sector said that the growth in new orders was aided by rising client numbers, product innovation and marketing campaigns. Factors like uncertainties in the trade negotiations between China and the United States, slower economic growth and labor shortages could crimp business prospects this year.

Zhong Zhengsheng, director of macroeconomic analysis at CEBM Group, said that while the service and manufacturing sector expansion slowed in December, the overall economic activities were on a stabilizing trajectory.

"Business confidence is still at a low level … which is an important factor that has constrained the economic rebound. China and the US signing the phase-one deal will help restore business confidence," Zhong said.

Robin Xing, chief China economist at Morgan Stanley, said that China's exports of goods and services may rebound in a restocking cycle given a possible recovery of global GDP growth starting from the first quarter and gradually gaining momentum over the course of the year.

China's private consumption may grow at a faster pace of 6.3 percent this year, compared with 6 percent in 2019. Stronger consumption will help stabilize the labor market, release pent-up demand and support a solid expansion of the service business, the economist said.

Xing said that better external demand and improved business confidence will also facilitate a modest recovery in manufacturing fixed-asset investment growth. He said that China's GDP growth may improve to 6 percent in the first quarter after reaching a bottom of 5.9 percent in the fourth quarter of 2019, as external uncertainties have abated temporarily, which could stabilize private sector confidence and lead to a mild recovery in exports and private spending.

China is scheduled to release a set of key economic data for December this week including consumer price index, social financing, money supply growth and foreign direct investment.

"We expect the upcoming December data release to show largely stable domestic activities and faster trade growth, with slightly slower growth of industrial production and retail sales, and steady overall FAI (fixed-asset investment) growth," Wang Tao, chief China economist at UBS, said in a research note.

"We expect the overall policy stance to continue with easing bias in the coming quarter, and more policy details to be rolled out in the upcoming meeting of the National People's Congress in March. We expect China's sequential growth momentum to rebound in the first and second quarter, and maintain our 2020 GDP growth forecast at 6 percent," Wang said.