China’s services sector activity strengthened in March, with the Caixin Services Purchasing Managers’ Index (PMI) rising to 51.9 from February’s 51.5, surpassing economists’ median forecast of 51.6. The reading marks the third consecutive month of accelerating growth and suggests consumer-driven sectors are anchoring the economy amid lingering industrial headwinds.
Consumer Spending Offsets Property Sector Weakness
The report highlighted robust demand for leisure, hospitality, and retail services, with new business sub-indexes hitting a six-month high. Analysts attribute the resilience to targeted fiscal stimulus, including holiday voucher programs and tax incentives for small businesses. “The services recovery is broadening beyond major cities,” noted ING Greater China economist Iris Pang. “However, the sustainability of this trend depends on employment stability and household income growth.”
Employment Gains Signal Cautious Optimism
Notably, the employment sub-index climbed into expansion territory (50.3) for the first time since September 2023, though firms cited hiring hesitancy due to rising wage pressures. Input cost inflation eased slightly to 54.1 from 54.8, while output charges saw only marginal increases—a sign service providers remain reluctant to pass costs to consumers.
Policy Support Underpins Sentiment
The improvement aligns with Beijing’s efforts to rebalance growth toward domestic consumption, including recent cuts to reserve requirement ratios (RRR) and expanded lending programs for SMEs. However, the Caixin survey contrasts with softer official NBS non-manufacturing PMI (51.8 vs. 52.4 in February), reflecting uneven recovery across regions and industries.
Markets Show Muted Reaction Amid External Risks
The yuan and China-sensitive assets like the Australian dollar showed limited response to the data, as traders focused on broader concerns over U.S. rate policy and geopolitical tensions. “Services strength is encouraging, but export orders remain a drag,” said Citigroup Asia FX strategist Wei Liang. “Until global demand rebounds, the PMI uptick won’t meaningfully shift growth expectations.”
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