Services Sector Strongly Rebounds in August, Caixin Survey Finds

(Beijing) — China’s service activity expanded at its fastest pace in three months in August, a Caixin survey showed Tuesday, adding to evidence of strength in the world’s second-largest economy.

The Caixin China General Services Business Activity Index picked up to 52.7 last month from 51.5 in July. That was well above the “50” line, which divides expansion from contraction, and the best reading since May.

The upturn, combined with acceleration in the Caixin China General Manufacturing Purchasing Managers’ Index (PMI) to a six-month high of 51.6 in August, provides signs that growth in the overall economy has stabilized after a disappointing performance in July. 

The Caixin China Composite Output Index, which covers manufacturing and services companies, also strengthened to a six-month high of 52.4 last month.

“The recovery in both manufacturing and services has led the economic outlook to continue to improve,” said Zhong Zhengsheng, director of macroeconomic analysis at CEBM Group, a subsidiary of Caixin Insight Group.

The services sector — which includes finance, real estate services and marketing, transportation, and retailing — has become an increasingly important part of the Chinese economy, reflecting a shift away from traditional heavy-industry manufacturing and exports.

Also known as the tertiary sector, it accounted for 51.6% of the country’s economic output in 2016, up from 50.2% in 2015, and contributed to nearly 60% of growth in the gross domestic product, according to the National Bureau of Statistics (NBS). The services sector is more labor-intensive than manufacturing, and policymakers are counting on it to create more jobs.

The increase in new orders received by Chinese services firms was the quickest in three months. A number of companies responding to the survey questions attributed the jump to improving market conditions and new marketing strategies.

The solid demand led services providers to speed up their payroll expansion, with the rate of job creation accelerating to the fastest seen in four months. That offset a further reduction in head counts at manufacturing companies last month, helping end a four-month sequence of decline of employment at the composite level.

Input costs rose only marginally last month at services firms while output prices fell for the first time in 17 months amid reports of greater market competition.

The official nonmanufacturing PMI, which covers the service and construction sectors and was published by the NBS last week, declined to 53.4 in August, the lowest reading since May 2016. An NBS analyst blamed the drop mainly on adverse weather that disrupted construction activities. The Caixin survey does not include the construction sector.

The government’s own manufacturing PMI, however, rose to 51.7 last month, up from 51.4 in July and beat analysts’ predictions. 

Although analysts broadly expect China’s growth to have held up well in August, many have remained cautious about the sustainability of its momentum over a longer term, citing downward pressures from a cooling property market, weaker growth in infrastructure investment, and Beijing’s tightening policies to rein in credit risks.

“We see growth staying firm for a while before softening modestly entering next year,” UBS economist Wang Tao said in a note last week.

China’s GDP increased 6.9% in the first six months, ahead of the government’s annual expansion target of around 6.5%.

Contact reporter Fran Wang (fangwang@caixin.com)