China Service Sector Growth Strengthens On New Business

China’s service sector expanded at a faster pace at the start of the third quarter, underpinned by the solid growth in new business, survey results released by S&P Global revealed on Thursday.

The Caixin services Purchasing Managers’ Index rose more-than-expected to 54.1 in July from a five-month low of 53.9 in June. The expected reading was 52.5.

A score above 50.0 indicates expansion. The reading suggested that the services economy has expanded for the seventh straight month.

The improvement was largely supported by strong growth in new orders. Companies cited firmer market conditions and greater client numbers as reasons for the increase in new orders. At the same time, foreign demand rose at the slowest pace in six months.

The increase in sales together with rising business requirements prompted companies to raise their workforce numbers. The pace of payroll growth was the strongest in four months.

Nonetheless, the increase in employment was not sufficient to ease capacity pressures as outstanding work increased again.

On the price front, the survey showed that input price inflation eased to its lowest level since February. Firms lifted their prices but the rate of selling price inflation softened from June.

Optimism among companies towards the 12-month outlook moved back below the series average and slipped to an eight-month low, the survey showed.

The composite output index fell to 51.9 in July from 52.5 in June. The marked increase in service activity helped to offset a renewed fall in manufacturing output.

Although the economic recovery in the first quarter exceeded expectations, the momentum weakened in the second quarter, Caixin Insight Group Senior Economist Wang Zhe said.

Data for industrial production and investment in June showed some signs of recovery but macroeconomic growth remained sluggish, and considerable downward pressure on the economy persisted, said Zhe.

Beijing aims to achieve economic growth of around 5.0 percent in 2023. The economy had expanded 6.3 percent in the second quarter.

In the latest World Economic Outlook, the International Monetary Fund said China’s recovery could slow, in part as a result of unresolved real estate problems, with negative cross-border spillovers. The economy is forecast to grow 5.2 percent this year before slowing to 4.5 percent in 2024.

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