Surprising Growth in China’s Services Sector Despite Economic Challenges

Despite a slight slowdown in expansion due to rising costs, China’s services sector is experiencing growth in new orders and business sentiment, according to a private sector survey released on Monday. The Caixin/S&P Global services Purchasing Managers’ Index (PMI) fell to 52.5 from 52.7 in March but remained in expansionary territory for the 16th consecutive month.

Wang Zhe, a senior economist at Caixin Insight Group, noted that the strong start to the year aligns with the consistent expansion seen in both the manufacturing and services PMIs. New business reached its highest level since May of last year, with growth in new export orders accelerating to the fastest pace in 10 months, driven by improved overseas demand and tourism activity. This led to increased business confidence among Chinese service providers for the year ahead.

Although companies faced some cost pressures, including rises in input prices for materials, labor, and energy, they were able to increase prices for customers. However, there was reluctance to fill vacancies left by departing employees. Wang emphasized the need for policies to be implemented effectively and promptly to maintain the current economic recovery momentum and improve market expectations.

Investors and analysts suggest that China’s structural reform efforts should be accompanied by increased stimulus measures to support a stronger and sustainable economic recovery. The composite PMI, which tracks both the services and manufacturing sectors, increased to 52.8 last month from 52.7 in March, marking the fastest pace since May 2023. Despite challenges such as confidence and demand issues stemming from a prolonged property sector crisis