Slowdown in Expansion for China’s Services Sector, But Business Sentiment and New Orders Improve

The services sector in China experienced a slight slowdown in expansion, according to a private sector survey released on Monday. Despite this, growth in new orders and business sentiment improved, supporting hopes for a sustained economic recovery. The Caixin/S&P Global services Purchasing Managers’ Index (PMI) fell to 52.5 from 52.7 in March but remained in expansionary territory for the 16th consecutive month.

According to Wang Zhe, a senior economist at Caixin Insight Group, the strong start to the year aligns with the consistent expansion seen in both the manufacturing and services PMIs. Overall, new business reached its highest level since May of last year, with growth in new export orders accelerating to the fastest pace in 10 months, driven by improved overseas demand and tourism activity. This led to increased business confidence among Chinese service providers for the year ahead.

Although companies faced some cost pressures, including rises in input prices for materials, labor, and energy, they were able to increase prices for customers. However, there was reluctance to fill vacancies left by departing employees. Wang emphasized the need for policies to be implemented effectively and promptly to maintain the current economic recovery momentum and improve market expectations.

The composite PMI, which tracks both the services and manufacturing sectors, increased to 52.8 last month from 52.7 in March, marking the fastest pace since May 2023. China’s economic recovery post-Covid has been challenging due to confidence and demand issues stemming from a prolonged property sector crisis. While the first-quarter GDP report showed pockets of strength