By Lucy Hornby
BEIJING (Reuters) - China's normally robust services sector weakened sharply in September to its lowest point since November 2010, as slow growth in manufacturing finally began to feed through to the rest of the economy, an official survey showed on Wednesday.
The official purchasing managers' index (PMI) for the sector fell to 53.7 in September from 56.3 in August, weighed by weakened construction services and transport as well as lackluster new orders overall, according to the latest survey from the National Bureau of Statistics.
The services index follows official and private sector PMI surveys of China's vast manufacturing industry that showed growth stabilizing at a slower pace, almost certainly signaling a seventh straight quarter of slowing economic growth in the world's second-largest economy [ID:nB9E8IO00W].
"The trend looks quite persuasive that we are now heading down to slower levels, which shows the impact of the slowdown on urban services," said Stephen Green, head of research for Greater China at Standard Chartered in Hong Kong.
"If your manufacturing sector has been slow for six months it makes sense it would feed through to other services like banking and other related services. It had been insulated for a while."
The value is the lowest in nearly two years, although the sector remains above the 50-point line that divides expansion from contraction. As China's economy matures and becomes more consumer-oriented, the services sector would be expected to post stronger growth than the manufacturing sector, which boomed earlier.
The China Federation of Logistics and Purchasing conducts the survey on behalf of China's National Bureau of Statistics. A similar survey of China's services sector will be released by HSBC on Monday.
China's fast-growing services industry had weathered the global slowdown much better than the factory sector, with the PMI consistently signaling healthy expansion and hitting a 10-month high of 58.0 in March.
The official services PMI had previously dropped below 55 in November of 2010 and November of 2009, although the data was not seasonally adjusted at that time.
Analysts had expected the services sector to start feeling the chill winds from the manufacturing sector, which has fluctuated below 50 for almost every month since June 2011, according to the HSBC PMI survey, which tracks more of the private factories vital to job creation.
The HSBC manufacturing PMI reading of 47.9 in September extended the longest run of readings below 50 in the survey's 8-year history, with the need for more pro-growth government policies signaled by a fall in the output sub-index to its lowest since March and a slide in export orders to a three-and-a-half-year trough.
The more cautious official manufacturing PMI, which tends to reflect larger, state-owned enterprises, has also been below 50 for two months running.
A Reuters poll last month forecast China's annual economic growth could ease to 7.4 percent in the third quarter, before picking up to 7.6 percent in the final three months. That would likely leave growth for 2012 below 8 percent, its lowest in more than a decade.
China's central bank cut interest rates twice in June and July and has lowered the level of cash it requires banks to hold as reserves three times since late 2011 as part of efforts to support the economy.
Beijing is expected to further loosen interest rates and reserve ratio policies through the end of the year, and has invited private capital to help fund a raft of new or fast-tracked infrastructure projects, but is unlikely to launch a massive stimulus as it did in 2008 for fear of adding to a pile of local government debt.
The construction sector in particular has been weakened by credit curbs meant to halt property speculation. While there had been signs of a slight pick-up in mid-summer, local efforts to revive the vital sector were quashed by central government, and the statistics bureau noted a clear slowdown in its construction services index in September.
Air freight volumes - which can reflect just-in-time overseas orders - have been negative year-on-year for all of 2012, as the euro zone crisis hurt Chinese exports.
Rail freight volume turned negative last month, for the first time since 2009, while water and highway transport have held up, according to Chinese official data provided by Standard Chartered.
(Additional reporting by Xu Wan; Editing by Alex Richardson)