China’s services sector expanded at a slower pace in January as the Lunar New Year holiday weighed on employment, though business sentiment improved, according to a private-sector survey released Wednesday.
The Caixin/S&P Global Services Purchasing Managers’ Index (PMI) dipped to 51.0 from 52.2 in December, remaining above the 50-mark that separates expansion from contraction. This aligns with the official PMI, which also showed a decline in services activity, slipping to 50.3 from 52.0.
The survey indicated that new business growth slowed to a four-month low, while employment levels fell to their weakest point since April 2024. The employment decline was partly attributed to the earlier-than-usual Lunar New Year, which led some restaurants and businesses to close temporarily, sending workers home for the holiday period.
Meanwhile, the volume of unfinished work dropped for the first time in six months, as weaker new business growth and improved efficiency eased backlogs.
Despite these challenges, business confidence improved from December. However, some firms voiced concerns about intensifying competition and uncertainties surrounding international trade.
Geopolitical tensions also added to the economic landscape, with the U.S. imposing fresh 10% tariffs on Chinese goods over the weekend. China responded on Tuesday with retaliatory measures on select U.S. imports.
“The new tariffs will nearly double the effective rate on Chinese exports to the U.S., but Chinese policymakers have significant room to offset the economic impact,” noted Thomas Gatley of Gavekal Dragonomics.
Julian Evans-Pritchard, head of China economics at Capital Economics, suggested that despite trade tensions, China could gain a stronger geopolitical position as U.S. policies strain its alliances.
In a broader economic view, the Caixin/S&P Global Composite PMI, which combines data from the manufacturing and services sectors, declined to 51.1 in January from 51.4 in December. While manufacturing output accelerated, it was not enough to offset the slowdown in services.
China continues to grapple with a prolonged property downturn that has dampened investment and consumer confidence. Policymakers have emphasized domestic consumption as a priority in their economic strategy for the year.
One bright spot emerged during the Lunar New Year festivities, as China’s box office recorded historic revenue highs, driven by successful sequels to popular domestic films. Some local governments bolstered spending by issuing cinema vouchers to encourage consumer activity.
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