China's smaller companies saw growth in service activities ease to a one-year low in August, an HSBC survey revealed yesterday.[Hong Kong company registration]

The Business Activity Index, a gauge of operating conditions in mainly private and export-oriented service companies, stood at 52 in August, down from 53.1 in July. As a reading above 50 means expansion, the index signaled a continued growth in service activities, HSBC and a research firm Markit said in a report.

But the expansion in activities was the weakest for a year, and many surveyed companies said incoming new business hardly grew.

"The HSBC service activity index moderated last month because of slower new orders," said Qu Hongbin, chief economist for China at HSBC. "Along with a nine-month low in new orders in the HSBC manufacturing Purchasing Managers' Index, it suggests China's economy still faces a downside risk."

Meanwhile, the official non-manufacturing PMI, slanted toward big state-owned enterprises, rose 0.7 point from a month earlier to 56.3 in August, bolstered by higher prices. But the state-owned companies also saw a dip in the growth of new orders last month.[Set Up Company Hong Kong]

Zhou Hao, an economist at Australia & New Zealand Banking Group Ltd, said the readings of both indices reflected insufficient demand and urged the government to act decisively.

"China needs more stimulus to restore people's confidence in the economy," Zhou said.

He expects the central bank to cut bank reserve requirement ratio this month, possibly after economic data for August are released on Sunday.

China's economy grew 7.6 percent from a year earlier in the second quarter, the slowest in three years and slightly beating the national target of a minimum 7.5 percent growth for this year.[Hong Kong Company Formation]

The August's manufacturing PMIs, unveiled earlier this week, disclosed falls in SOEs and private companies. It was the first time in nine months that state-owned manufacturers recorded a slowdown in business activities.