CHINA'S services sector cooled in November to its weakest growth in three months, an HSBC purchasing managers' index (PMI) showed yesterday, the latest data portraying 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, the Chinese Government 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 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 the government 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.

    Some economists are reluctant to read too much significance into the services indexes given their volatility, lack of seasonal adjustments, simple calculation methodology and their consequently weaker predictive power.

    For instance the reading of 49.7 in China's official services PMI for November was an 8 point plunge from October, but smaller than the 9.5 point average since 2007, the starting point for this series, said Tim Condon, head of Asian economic research at ING in Singapore.

    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 past 18 months and a clear sign of a slowing economy.

    "The weakness in the manufacturing sector is spreading to the non-manufacturing economy. We think the policy fine-tuning also will spread," ING's Condon said.

    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 programs 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 organizations, fell to 49.6, suggesting a contraction in global manufacturing.

    Most analysts say the central bank has room for further cuts in banks' reserve requirements to release cash into the economy given that inflation is less of a concern. Consumer inflation fell in October to 5.5 percent from a three-year high in July of 6.5 percent.(SD-Agencies)