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Services Expansion Picks Up Momentum: Caixin Survey

Mechanic under car in auto repair shop. Photo: VCG
Mechanic under car in auto repair shop. Photo: VCG

A gauge of activity in China’s services industries rebounded in September, as new business and input costs continued to rise at a faster pace, offsetting the effect of the employment gauge dipping to a 30-month low, a Caixin survey showed Monday.

The Caixin China General Services Business Activity Index, which provides a snapshot of operating conditions in the country’s vast services sector, picked up to 53.1 in September from a 10-month low of 51.5 in August. The dividing line of 50 separates expansion from contraction. The larger the number above 50, the faster the expansion, while the further below 50, the greater the contraction.

The services sector, also known as the tertiary sector, includes finance, real estate services, marketing, transportation and retailing. It now accounts for more than half of China’s gross domestic product, according to government data.

The Caixin survey showed that the gauge of new business placed with services providers remained in expansionary territory and continued to recover in September, just off a 31-month low in July. Some respondents attributed the recovery to new product offerings and increased client bases.

“The rate of input price inflation accelerated to the second-steepest since May 2012,” with many companies reporting higher fuel and raw material prices, as well as greater staffing costs, the survey showed. However, services firms made broadly no change to the prices they charged customers, with some mentioning greater efforts to remain competitive.

“Prices charged by service providers declined for the first time in 13 months, while input costs rose at their quickest pace since January, which could squeeze company profit margins,” Zhong Zhengsheng, director of macroeconomic analysis with consultancy CEBM Group, a subsidiary of Caixin Insight Group, said in a statement.

Notably, the gauge of employment in the services sector fell below 50 for the first time since July 2016, with the reading at the lowest level in 30 months, indicating more companies were shedding workers than hiring.

“The deterioration in employment will test policymakers’ determination in pressing ahead with reforms,” Zhong said.

The gauge of business expectations, which indicates services firms’ confidence in the business outlook over the coming year, also slipped in September, despite remaining in positive territory, according to the survey.

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In the manufacturing sector, the Caixin China General Manufacturing Purchasing Managers’ Index fell for the fourth straight month to 50 in September, marking its weakest level in 16 months, according to a survey report published on Sept. 30.

The Caixin China Composite Output Index, which covers both manufacturing and services, inched up to 52.1 in September from a five-month low of 52 in August, Monday’s survey report showed.

Contact reporter Lin Jinbing (jinbinglin@caixin.com)

Read more about Caixin’s economic indexes.

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