China’s services activity expands further, but external demand slows, Caixin PMI shows

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China’s services activity expands further, but external demand slows, Caixin PMI shows

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

The Caixin/S&P Global services purchasing managers’ index (PMI) rose to 52.1 from 51.2 in June, pointing to expansion for the 19th straight month. The index covers mostly private and export-oriented companies and the 50-mark separates expansion from contraction on a monthly basis.

In contrast, the official services PMI showed the sector stalling in July from growth in June, with retail sales, capital market services and real estate service industries all shrinking.

The world’s second-biggest economy grew much more slowly than expected in the second quarter and faces deflationary pressures and a protracted property slump, with retail sales growth in June grinding to its weakest pace since early 2023.

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

Service providers grappled with growing costs for raw materials, wages and freight, but employment rose at the fastest pace in 11 months.

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

“Prices at the composite level remained weak, on the sales front in particular, further squeezing the space for company profits,” said Wang Zhe, senior economist at Caixin Insight Group.

China’s leaders last week signalled that fiscal support for the rest of the year will “focus on consumption”, aiming to boost incomes and social ********, a shift long advocated by many economists who say the country’s economic model relies too heavily on investment.

“Without going beyond the reactive and incremental easing mode, however, the confidence could be still lingering at low levels in coming months,” said economists at Citi in a research note.

“More significant domestic stimulus may only become plausible next year in the face of potentially stronger external headwinds,” Citi said.

(Reporting by Liangping Gao and Ryan Woo; Editing by Neil Fullick)

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