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The China Services Business Activity Index based on a survey from HSBC Holdings Plc retreated to 51.1 in April from 54.3 in March, indicating the weakest expansion in service sector activity since August 2011.
It was mainly due to a slower rate of new-order growth in April, amid both external and local sluggish market demand.
HSBC said the slowdown has brought negative influences to bear on employment in the service sector. It has been the first time service providers have cut their staff numbers since January 2009.
"The cooling of service sector activity in April likely reflected the knock-on effect of slower manufacturing growth, the impact of property tightening measures and the spreading of bird flu," said Qu Hongbin, chief economist in China with HSBC.
He said those factors may add downside risks to growth in the second quarter. "There is still a road with many humps toward sustaining growth recovery," he added.