Index suggests less purchasing activity in April

The expansion of China's non-manufacturing sector slowed in April as demand from the construction and service industries moderated, statistics released on Thursday showed.

The Purchasing Managers' Index in the non-manufacturing sector, an indication of operating conditions, declined to 56.1 last month from 58 in March, the National Bureau of Statistics and China Federation of Logistics and Purchasing said in a release.

"China's non-manufacturing economy maintained steady growth in April," Cai Jin, deputy chairman of the CFLP, said in a statement.

An expected increase in investment and consumption was likely to accelerate the expansion of non-manufacturing activity this month, Cai said.

The non-manufacturing PMI is based on a survey of 1,200 companies in 27 industries including transportation, real estate, retailing, catering and software. A reading above 50 means expansion, while one below 50 signals contraction.

According to the survey, the sub-index of new orders dropped to 52.7 in April, compared with 53.5 in March, meaning that market demand still increased but at a slower pace, the federation said.

The intermediate input price sub-index decreased by 2.3 points to 57.9 last month after four months of consecutive increases, as inflationary pressure eased.

The data provide more space to further ease macroeconomic policy, the statement said.

On Monday, the statistics bureau released the April manufacturing PMI, which rose to a 13-month high of 53.3 from 53.1 in March.

However, a separate PMI released by HSBC showed a continued contraction with a reading of 49.3 last month, compared with 48.3 in March.

The divergence between the two indices indicates that large State-owned companies saw conditions improve, while private-sector entities were still troubled by tight credit conditions, said Matt Jamieson, the head of the Asia-Pacific research corporate ratings group of Fitch Rating Ltd.

Although economic indicators offer signs of a rebound in China's business activity, especially renewed growth in new export orders, the market remains skeptical about the strength of the recovery, analysts said.

"Investors are particularly concerned about the composition and sustainability of the increase in bank lending, which we think would be the focus in the upcoming April data release on May 11," said Wang Tao, chief economist with UBS AG.

"We think April data will show that economic activity is rebounding modestly but may not be sufficient to clear all the doubts."

Economists said export growth is likely to remain stable for the rest of the second quarter, and new orders will increase marginally.

Rising domestic orders are expected to accelerate the rebound in both the non-manufacturing sector and manufacturing production, they said.