Caixin
Aug 04, 2021 08:37 PM
ECONOMY

China’s Services Growth Gains Pace, Caixin PMI Shows

China’s services sector expanded at a faster pace in July, boosted by the accelerating recovery in business activity and new orders as some domestic Covid-19 flare-ups came under control, a Caixin-sponsored survey showed Wednesday.

The Caixin China General Services Business Activity Index, which gives an independent snapshot of operating conditions in the sector, surged to 54.9 in July from a 14-month low of 50.3 the previous month. A number above 50 indicates an expansion in activity, while a figure below that points to a contraction.

The index, better known as the Caixin China services PMI, showed the services sector expanded for a 15th consecutive month.

Services-PMI

The indicator is closely watched by investors as one of the earliest available monthly barometers of the health of the world’s second-largest economy.

Overall, the Caixin China General Composite PMI, which covers both the manufacturing and services sectors, rose to 53.1 in July from 50.6 the month before, according to the survey carried out between July 12 and July 22.

“Services supply and demand have both expanded for 15 straight months. As the epidemic in the Pearl River Delta region was brought under control, the recovery of services supply and demand accelerated,” said Wang Zhe, senior economist at Caixin Insight Group.

In the services sector, both business activity and total new orders rose at a faster clip than the previous month, as the containment of domestic Covid-19 outbreaks and firmer market conditions helped boost customer numbers and demand, according to surveyed firms. Due to the resurgence of Covid-19 cases overseas, new export business shrank slightly in July.

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As a result of greater amounts of total new business and insufficient capacity, Chinese service companies saw a modest increase in outstanding workloads in July, nevertheless the fastest seen in over a year. This resulted in improving employment in the services industry, though new job numbers grew only slightly, as some companies tried to expand capacity in response to growing market demand, while some sought to control labor costs.

“Prices in the services sector rose, indicating that inflationary pressure again increased,” said Wang, noting labor, fuel and raw material prices all reportedly increased. Input costs rose for the 13th straight month in July, with the growth exceeding the long-term average. As a result, prices charged by service firms increased at the quickest clip seen this year, as firms looked to alleviate pressure on their operating margins.

Service providers became more optimistic about their prospects over the next 12 months in July, as the overall degree of positive sentiment improved from a nine-month low the previous month, though still slightly lower than its long-term average. A number of surveyed firms hoped that an end to the pandemic would boost sales at home and abroad, and lead to stronger global economic conditions, while new product releases could further boost services activity, the survey said.

China’s official services PMI, released by the National Bureau of Statistics on Saturday, rose to 52.5 (link in Chinese) in July from 52.3 the previous month.

Looking ahead, the services sector is likely to come under high pressure this month, as the latest resurgence of Covid-19 in dozens of cities across the country has triggered multiple travel bans and other epidemic control measures.

Contact reporter Luo Meihan (meihanluo@caixin.com)

Read more about Caixin’s economic indexes.

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