Caixin China General Services PMI (July 2021)

Service sector activity rebounds in July

Key findings

• Sharper rises in business activity and new orders

• Employment expands slightly amid renewed rise in backlogs of work

• Operating expenses increase at faster pace

Data were collected 12-22 July 2021

PMI survey data showed a steeper increase in Chinese services activity in July. The stronger upturn coincided with the successful containment of the recent uptick in COVID-19 cases, which in turn led to greater customer numbers and boosted new order intakes. As a result, firms registered a renewed increase in backlogs of work, which led to a slight rise in payroll numbers. Business confidence also strengthened from that seen in June. Finally, prices data showed steep increases in both input costs and output charges.

At 54.9 in July, the headline seasonally adjusted Business Activity Index rebounded from June's 14-month low of 50.3 and signalled a sharp and accelerated expansion of services activity. Growth was also quicker than that seen on average since the survey's inception in late-2005 (54.1).

Underpinning the sharper upturn in activity was a further rise in new business. Notably, the rate of new order growth quickened from June's recent low and was steep overall. Panel members often mentioned that the containment of the virus domestically and firmer market conditions had helped to boost customer numbers and demand. However, the pandemic continued to weigh on new export business, which was broadly stagnant in the latest survey period.

After a slight reduction in June, outstanding workloads increased at Chinese services companies in July. Though modest, the rate of accumulation was the fastest seen for over a year, with respondents often linking the upturn to greater amounts of new business and insufficient capacity.

Service sector employment likewise returned to growth at the start of the third quarter. That said, the rate of job creation was only slight, as efforts to expand capacity were partly offset by other firms that looked to control their costs.

After easing to a marginal pace in June, the rate of input cost inflation quickened notably in the latest survey period. Costs rose markedly overall, with the increase exceeding the long-run series average. Companies reported having higher staff, fuel and raw material costs during July.

Consequently, prices charged by services companies also increased during July, as firms looked to alleviate pressure on their operating margins. The rate of inflation was the quickest seen in the year to date and solid overall.

Business confidence regarding the one-year outlook for activity improved during July, picking up from June's nine-month low. However, optimism remained softer than that seen on average over the series history. A number of 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 were also expected to lift activity levels.

Comment

Commenting on the China General Services PMI™ data, Dr. Wang Zhe, Senior Economist at Caixin Insight Group said:

“The Caixin China General Services Business Activity Index rose to 54.9 in July, up from 50.3 the previous month, its 15th consecutive month in expansionary territory.

“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. In July, the gauges for both business activity and total new business increased by at least 4 points from the previous month. Market demand in the services sector largely picked up. Due to the resurgence of Covid-19 overseas, new export business dipped in July from the previous month.

“The job market for services improved. Although the measure for employment fell into negative territory in June, employment in the services sector was not bad overall. In July, the measure for employment bounced back into expansionary territory, as enterprises gradually increased hiring in a response to growing market demand. Still, rising labor costs suppressed the growth rate of hiring.

“Prices in the services sector rose, indicating that inflationary pressure again increased. The downward trend in the gauges for input prices and prices charged by service companies in June did not last, with both rising in July, indicating a surge in inflationary pressure. Labor, energy and raw material prices all increased. As a result, input prices rose for the 13th straight month in July. That led to the gauge for prices charged by service enterprises to rise more than 4 points from the previous month.

“Service companies remained optimistic. The measure for business expectations ticked up in July, but was still slightly lower than its long-term average. Surveyed enterprises hoped the epidemic would remain under control and that their production capacity could further recover.”

Caixin China General Composite PMI™

Total business activity rises solidly in July

Composite indices are weighted averages of comparable manufacturing and services indices. Weights reflect the relative size of the manufacturing and service sectors according to official GDP data. The China Composite Output Index is a weighted average of the Manufacturing Output Index and the Services Business Activity Index.

The Composite Output Index posted 53.1 in July, up from a 14-month low of 50.6 in June, to point to a stronger rise in overall Chinese business activity. Notably, the rate of growth was solid and above the long-run series average. Sector data showed that the upturn was predominantly driven by a steep increase in services activity, as manufacturing output expanded only slightly.

New business at the composite level also rose at a quicker pace, albeit modestly overall, as a sharp rise in new work at services companies was partially offset by a renewed fall at goods producers. New orders from abroad meanwhile continued to rise only slightly.

Latest data also showed that input costs and output charges rose at faster rates than in June. At the same time, employment increased only marginally.

Comment

Commenting on the China General Composite PMI™ data, Dr. Wang Zhe, Senior Economist at Caixin Insight Group said:

“The Caixin China General Composite PMI came in at 53.1 in July, up from 50.6 the month before. The gauges for output, total new orders, new export business and employment were all in expansionary territory. However, the gauges for input and output prices also remained well above 50, so we still need to be wary of inflationary pressure.

“Overall, the manufacturing and services sectors continued to grow in July. Both supply and demand maintained the upward trend, and the employment market stayed stable. The gauges for input and output prices in both the manufacturing and services sectors remained high, indicating immense inflationary pressure. As the July surveys of Caixin China PMIs were conducted after the epidemic in Guangdong province was brought under control, and before Covid-19 resurged in Jiangsu province, the services sector expanded rapidly, though the manufacturing sector was slightly weaker. The resurgence of the epidemic in some parts of China at the end of July is expected to hurt August’s PMI readings. China’s official second-quarter economic figures were in line with expectations, but the Caixin China PMIs in July suggest that the economic recovery is not on sure footing. The economy still faces enormous downward pressure, and we need to ensure business owners remain confident.”

Contact

Dr. Wang Zhe

Senior Economist

Caixin Insight Group

+86-10-8590-5019

zhewang@caixin.com

Ma Ling

Senior Director

Brand and Communications

Caixin Insight Group

T: +86-10-8590-5204

lingma@caixin.com

Annabel Fiddes

Associate Director

IHS Markit

T: +44 1491 461 010

annabel.fiddes@ihsmarkit.com

Joanna Vickers

Corporate Communications

IHS Markit

T: +44 207 260 2234

joanna.vickers@ihsmarkit.com

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