China services sector growth weakens slightly in Sept

(Agencies) Updated: 2014-10-08 13:54

Downside risks

Last week, a pair of surveys showed China's manufacturing sector held up in September but remained subdued in a sign that the economy is still struggling to recover its growth momentum - despite recent policy support.

Steps unveiled since April included reserve requirement cuts for selected banks and faster investment in railways and public housing. But much of their broader impact may have been offset by a cooling property market and tighter credit as banks grow more cautious about lending as the economy cools.

China services sector growth weakens slightly in Sept

China Sept factory activity edges up on stronger orders

Services sector expands with manufacturing

In a bid to avert a deeper slide in the housing market, China's central bank and banking regulator relaxed lending rules for second-home buyers on Sept 30 by giving them a 30 percent discount on mortgage rates and cutting their down payment levels to 30 percent from 60-70 percent.

"We think the easing lending condition is more impactful compared with unwinding of previous housing purchase restrictions. As such, we expect the systemic risk arising from property sector to be contained," OCBC said in a research note on Wednesday.

Other economists are not so sure. A glut of unsold and unoccupied homes and buyers' expectations of further price declines could temper any rebound.

The central bank said on Sunday it will use various monetary tools to maintain adequate liquidity and reasonable growth in credit and social financing.

Analysts expect more policy measures will be needed to help achieve the government's growth target of around 7.5 percent this year, although any dramatic stimulus looks unlikely as reform-minded top leaders have shown greater tolerance for slower growth.

The government is due to release September data on trade, bank lending, investment and factory output in the coming week or so, leading up to third-quarter GDP on Oct 21.

"The upcoming September data release will likely show a tentative improvement in real economic activity, but unlikely be strong enough to prevent full third-quarter growth from falling to 7.1 percent year on year, adding pressure on the government to further intensify policy support," Tao Wang, China economist at USB, said in a note.

The economy expanded by 7.5 percent in the second quarter on-year.