China’s services sector continued its growth trajectory in July, propelled by increased new orders. However, a slowdown in external demand emerged, reaching its lowest level in nearly a year, according to the latest Caixin/S&P Global survey released on Monday.
The Caixin/S&P Global services Purchasing Managers’ Index (PMI) climbed to 52.1 in July from 51.2 in June, marking the 19th consecutive month of expansion. This index, which focuses primarily on private and export-driven companies, uses the 50-point threshold to distinguish between expansion and contraction.
In contrast, the official services PMI indicated stagnation in the sector in July compared to the previous month’s growth. Key areas such as retail, capital markets, and real estate services experienced contraction.
China’s economy, the second-largest globally, expanded at a slower pace than anticipated during the second quarter and faces ongoing deflationary pressures alongside a prolonged downturn in the property sector. June’s retail sales growth was the slowest since early 2023.
The Caixin/S&P survey revealed that the new orders sub-index improved to 53.3 in July from 52.1 in June. However, the measure of overseas demand showed its smallest increase since August 2023.
Despite facing rising costs for raw materials, wages, and logistics, service providers saw the most significant rise in employment in 11 months.
The composite PMI, which aggregates both services and manufacturing data, moderated slightly from June but remained in positive territory.
“Composite price levels remained subdued, particularly on the sales side, further constricting profit margins for companies,” noted Wang Zhe, a senior economist at Caixin Insight Group.
Last week, Chinese leaders indicated that fiscal policies for the remainder of the year will prioritize consumption, aiming to enhance income levels and social welfare. This shift aligns with long-standing recommendations from economists who argue that China’s economic model depends excessively on investment.
Economists at Citi warned that without more substantial and proactive measures, economic confidence might remain low in the coming months. They suggested that significant domestic stimulus might become necessary next year, particularly if external economic challenges intensify.
