Official PMI drops but still indicates expansionary activity

Service activity in state-owned enterprises dipped in June, but private counterparts recorded their strongest showing in 15 months, two separate surveys showed on Thursday.

The official non-manufacturing Purchasing Managers' Index, compiled by the China Federation of Logistics and Purchasing and weighted toward state-owned enterprises, was 55 last month, down from 55.5 in May.

In comparison, the HSBC China Services Business Activity Index, which measures private service providers, accelerated to 52.4, up from 50.2 in May.

Analysts said it was not unusual for the two surveys to show different results since they focus on different things.

Qu Hongbin, chief economist at HSBC, said both new and existing business indices in the HSBC reading rebounded while employment also improved, suggesting stronger economic growth momentum in China.

"The expansion in the service sector reinforces the recovery seen in the manufacturing sector. This signals a broad-based improvement over the month," Qu said.

"The economy is slowly turning around, and we expect the recovery to remain supported by accommodative policies on both fiscal and monetary fronts in the coming months," Qu added.

He added the slowdown in the property market still posed some downside risk, and it may warrant further easing measures in the second half of this year.

Earlier data showed China's manufacturing sector performed better in June with both the official and HSBC PMI staying above the expansionary line.