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China's service sector slows

China's service sector slows

The service sector in China fell sharply in November and expectations for new business dropped to their lowest level in three months, a study showed on Monday.

An HSBC purchasing managers' index portrayed an economy slowing quickly and in need of policy support.

The index fell to 52.5, a sharp decline given that October's reading was 54.1 -- the highest in four months -- though the index remains above the 50 level that separates expansion from contraction in the sector.

Expectations for new business dropped to their lowest level in three months too, but remained firmly above 50.

"With price pressures easing further, Beijing can and should use policies that are targeted on small businesses and service sectors to keep GDP growth at above 8 percent for the coming year," Qu Hongbin, HSBC's chief China economist, said in a statement.

China's official PMI for its non-manufacturing sector, released on Saturday, fell to 49.7 in November from 57.7 in October, the China Federation of Logistics and Purchasing said.

The readings mirror similar weakness in the country's giant manufacturing sector and underline expectations that Beijing will ease monetary policy further to cushion the blows of the global economy.

PMI data in the past week has shown that both domestic and export orders are weakening, helping explain the central bank's decision last week to cut bank reserve requirements for the first time in three years.

The move to free up cash was a signal that the central bank was shifting toward loosening monetary policy to support the economy, which is widely expected to grow next year at less than 9 percent for the first time in a decade, economists said.

Past performance suggests that half that decline will be recovered in December, leaving the index in the mid-50s, though that is well below the near-60 level it has been at for most of the last 18 months and a clear sign of a slowing economy.

Manufacturing dominates the Chinese economy and made up some 58 percent of activity in 2010. Services accounted for around 38 percent in 2010, losing some share in recent years to manufacturing which benefited from government stimulus programmes to help the economy through the global financial crisis.

Factories elsewhere are also feeling the force of the global economic slowdown. A global PMI released last Thursday by JPMorgan, with research and supply management organisations, fell to 49.6, suggesting a contraction in global manufacturing.

Chinese officials have expressed growing alarm at the slide in the global economy as Europe struggles to produce a decisive solution to its debt crisis. China's economic growth has eased for three straight quarters to 9.1 percent in the July-September period.

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