Chinese stocks added to gains on optimism a rebound in services growth will help offset a pullback in manufacturing and a property slump. China’s weakening real-estate market has weighed on related industries, raising concern the government will miss its expansion target of about 7.5 percent this year.

“The economy still faces downside risks to growth in the second half of the year from the property sector slowdown,” Qu Hongbin, HSBC’s chief China economist in Hong Kong, said in a statement. “We think policy makers should use further easing measures to help support the recovery.”

August data point to divergent trends in employment across manufacturing and services, according to a statement from HSBC and Markit.

Eoin Treacy's view

The intended rebalancing of the Chinese economy continues to proceed with a focus on developing the services sector. The development of the Shanghai financial sector free trade zone and the opening up of the connection between mainland bourses and Hong Kong are indications that the financial market liberalisation that is also part of the broad economic rebalancing continues to proceed.

The Hang Seng China Affiliated Corps Index (Red Chips) has been largely rangebound for five years and rallied to a new six-year high in August. A break in the short-term progression of higher reaction lows would be required to check momentum beyond a brief pause.

The Hang Seng China Enterprises Index (H-Shares) continues to extend its rally towards the upper side of a three-year range and a sustained move above 12,000 would confirm a return to demand dominance beyond the short term.

This blog post from Mark Mobius’ blog describes the differences between the various types of China related shares.

http://mobius.blog.franklintempleton.com/2012/10/16/the-abcs-of-chinas-share-markets/