Global Economy

China's July services sector grows at slowest pace in five months

Customer service workers at the headquarters of an apparel manufacturer, Jeanswest, in Huizhou, Guangdong province, China.

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China’s services sector expanded at the slowest pace in five months in July despite a sharp upturn of new export orders, a private survey showed on Monday.

The Caixin/Markit services purchasing managers’ index (PMI) slipped to 51.6, the lowest reading since February, from June’s 52.0. The 50-point mark divides growth from contraction, and the overall service index has shown expansion every month since it was started in 2005.

In July, a sub-index for new export orders placed with Chinese services firms swung back to expansion at a three-month high of 54.0, compared with 49.5 in the previous month. Caixin/Markit said survey respondents commented that strong demand across international markets supported the latest upturn in new work from abroad.

Overall new business remained largely stable, though the sub-index dipped slightly to 53.2 from 53.4 in June, suggesting a string of government support measures for the economy over the last year were propping up domestic demand.

“In general, China’s economy showed signs of recovery in July, thanks to large-scale tax and fee cuts, as well as ongoing support from monetary policy and government-driven infrastructure investment,” said Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group, in a statement accompanying the Caixin release.

The survey showed business confidence for the year ahead remained unchanged from June’s level, though some companies expect that relatively weak market conditions in the coming months could weigh on demand.

Employment in the sector increased at a slightly faster pace than in June. The employment index has shown expansion every month since September.

Chinese service providers also registered a solid rise in cost burdens last month, due to higher prices for materials, staff and fuel, outpacing the prices charged, as a number of firms indicated competitive market conditions had dampened overall pricing power.

Separately, an official gauge last week showed non-manufacturing activity grew at its slowest pace in eight months in July.

The intensifying trade dispute between the United States and China has broadened beyond tariffs on goods to other areas of such as the fast growing telecommunications equipment and services sector.

Beijing has been counting on a strong services sector to pick up the slack as exports falter and manufacturers shed jobs, due to rising labor costs and the trade war.

Caixin’s composite manufacturing and services PMI, also released on Monday, ticked up to 50.9 in July from 50.6 in June.


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