Services sector in China experiences a marginal uptick in October

03 Nov, 2023

Services sector in China experiences a marginal uptick in October

:A private-sector survey revealed that China's services sector experienced a slight uptick in activity during October. However, concerns lingered as sales grew at the slowest rate in ten months, and employment remained stagnant due to diminishing business confidence. The services sector, a significant contributor to employment in China, had shown strong signs of recovery earlier in the year. Still, analysts are now questioning the sustainability of this growth, given sluggish household income growth and an uncertain job market.

According to the Caixin/S&P Global services Purchasing Managers' Index (PMI), the sector's activity rose to 50.4 in October, up from September's nine-month low of 50.2. Despite this improvement, the pace of expansion remained notably slower than the average seen in the first half of the year. The 50-point mark in the PMI differentiates between expansion and contraction in activity. In contrast, an official survey reported that services PMI dropped to 50.1 in October, down from 50.9 in September.

Xing Zhaopeng, senior China strategist at ANZ, commented, "The services sector, which is highly related to youth employment, recovered 90 percent to pre-COVID levels." However, he added, "it is unlikely to get a rebound more than in the sector."

The Caixin survey highlighted that new orders in the services sector during the past month rose at the slowest rate in ten months. This offset the boost from increased travel activity seen during the eight-day National Day holiday. On the positive side, there was an improvement in foreign demand for Chinese services, reflecting increased overseas visitors.

The slowdown in sales growth prompted companies to adopt a more cautious approach to recruitment. Employment in the sector remained unchanged in October, breaking a streak of expansion in the previous eight months.

Amid subdued demand, overall optimism among services companies declined for the fourth consecutive month, reaching the lowest level since March 2020.

Services companies raised their prices to pass on higher input costs to customers, although the rate of input cost inflation was the slowest since June 2022.

The composite PMI by Caixin/S&P, which combines data from both manufacturing and services sectors, declined to 50.0 in October from 50.9 in September, marking the lowest reading since December 2022.

Wang Zhe, an economist at Caixin Insight Group, noted, "The market conditions for manufacturing were more sluggish compared with the services sector."

While China's economy showed better-than-expected growth in the third quarter, economists remain cautious due to concerns about the weak property sector, reduced travel demand, local government debt, and geopolitical tensions that may influence the outlook.