Growth in China’s Services Activity Accelerates in July

BEIJING (Reuters) – Growth in China’s services activity accelerated in July, supported by new orders, although the momentum in overseas demand eased to its slowest pace in 11 months, according to a private-sector survey released on Monday.

The Caixin/S&P Global services purchasing managers’ index (PMI) rose to 52.1 from 51.2 in June, marking expansion for the 19th consecutive month. The index primarily reflects private and export-oriented companies, with the 50-mark delineating expansion from contraction on a monthly basis.

In contrast, the official services PMI indicated that the sector stalled in July after experiencing growth in June, with retail sales, capital market services, and real estate service industries all contracting.

The world’s second-largest economy grew more slowly than anticipated in the second quarter and is currently facing deflationary pressures along with a prolonged property slump, with retail sales growth in June reaching its lowest pace since early 2023.

The Caixin/S&P survey revealed that the new orders sub-index increased to 53.3 in July from 52.1 in June, while the gauge of overseas demand displayed its smallest expansion since August 2023.

Service providers are dealing with rising costs for raw materials, wages, and freight, but employment grew at its fastest rate in 11 months.

The Caixin/S&P’s composite PMI, which encompasses both services and manufacturing sectors, dipped from June but remained in expansionary territory.

“Prices at the composite level remained weak, especially on the sales front, further squeezing company profit margins,” stated Wang Zhe, senior economist at Caixin Insight Group.

Last week, China’s leaders indicated that fiscal support for the remaining part of the year will concentrate on consumption, aiming to boost incomes and social welfare—a shift long advocated by economists concerned that China’s economic model depends too heavily on investment.

Economists at Citi noted, “Without moving beyond reactive and incremental easing, confidence may remain at low levels in the coming months.”

“More significant domestic stimulus may only become feasible next year due to potentially stronger external challenges,” Citi added.