Unprecedented Slowdown in China's Services Sector Activity Raises Concerns - Exclusive Analysis
In a shocking turn of events, growth in China's services sector activity slowed in August despite the summer travel peak, prompting some firms to cut staff amid concerns about rising costs, a private-sector survey showed on Wednesday.
The Caixin/S&P Global services purchasing managers' index (PMI) slipped to 51.6 in August from 52.1 in July. The 50-mark separates expansion from contraction on a monthly basis.
Despite the new business index remaining above 50, extending the sequence of expansion that started from January 2023, the rate of growth was softer than July.
Export business quickened, with overseas client interest in the tourism industry supporting faster business growth. The State Council also published a notice to improve high-quality development of China's service trade.
Although business optimism climbed to the highest since May, growth in new business did not lead to more jobs, with employment declining in August after rising in July due to the need to lower costs.
Cost inflation accelerated to the highest since June 2023, while selling prices fell for the first time in seven months. The ailing property sector and external geopolitical uncertainties pose challenges to the economy.
With the government's 2024 growth target of 'around 5%' potentially at risk, the economy faces a double whammy of weather shocks and weak demand, according to Citi analysts.
Overall, the slowdown in China's services sector activity is a cause for concern, with implications for the global economy and financial markets. Investors should stay vigilant and adjust their strategies accordingly to navigate the changing landscape of the Chinese market.
