China’s services sector slows in August as economic momentum stalls in crucial area

Growth in China’s services sector slowed in August as fierce competition forced businesses to cut prices while their own costs rose, according to a survey of private firms. The Caixin China services purchasing managers’ index (PMI) came in at 51.6 in August, down from 52.1 in July.
A number above 50 indicates that activity is expanding so the latest reading suggests that the services sector continues to grow. But the survey shows momentum stalling in a sector that accounted for about 57 per cent of China’s GDP during the first six months of 2024.
“Employment in the services sector shifted from expansion to contraction. The indicator sank into negative territory for the fifth time in the past seven months. Surveyed companies adopted a cautious approach to hiring to save costs, leaving the labour market under pressure. The reduced workforce coupled with a slowdown in business activity contributed to a slight increase in backlogs of work,” said Wang Zhe, senior economist at Caixin Insight Group.
The Chinese government has sought in recent months to boost the services sector as it seeks to revive consumer confidence amid an enduring property market slump. This week saw new guidelines to improve the experience for tourists by easing visa requirements and making it easier for foreigners to use the mobile-based electronic payments systems ubiquitous in China.
China has waved visa requirements for citizens of 22 countries, including Ireland, and required all hotels in the country to accept foreign guests. Trips to China increased by almost 130 per cent to 17.25 million in the first seven months of this year but tourist numbers remain about 40 per cent below their level in 2019 before the coronavirus pandemic.
Businesses in the services sector expressed confidence that the market would improve, according to the Caixin PMI. But their optimism was tempered by a squeeze on margins from rising input costs and falling output prices.
[ China faces serious, short-term economic challengesOpens in new window ]
“Input costs were under pressure as a result of rising costs for raw materials, wages and freight, pushing the gauge to its highest level since June 2023. In contrast, output prices declined for the first time in seven months, with the gauge registering the lowest level since April 2022. Competition in the sector was still fierce and boosting sales through price cuts became a priority for businesses,” Dr Wang said.
Caixin’s manufacturing PMI returned to expansionary territory in August following a contraction in July but the reading of 50.4 was the second lowest this year. And exports shrank for the first time in eight months amid weaker demand for consumer goods in overseas markets, according to the survey.