Optimism in China’s Service Sector Is High despite June’s Fall
Slower overall economic activity in China (FXI) in June 2017 was mainly due to the weak performance of the country’s services sector. The fall in the service sector’s performance was in stark contrast to the activity pickup in the manufacturing sector in June 2017. The manufacturing sector’s performance improved as it moved into the expansionary zone in June on increased new orders and output.
Surprisingly, the Caixin China Services PMI (purchasing managers’ index) fell to 51.6 in June 2017 compared to 52.8 in May, according to a Markit report in July 2017. In May 2017, the services PMI touched a four-month high due to increased new order work.
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The services sector is currently assuming a greater role as China (MCHI) transitions to a more demand-based economy. The services sector in China (ASHR) has doubled in the last two decades, accounting for ~46% of the country’s 2016 GDP.
China’s services PMI
The services sector’s PMI remained below the market’s expectation of 52.9 in June 2017. The sector’s new orders rose at their slowest pace in over a year. Output also rose at its slowest pace since May 2016. Weak growth in new orders was mainly the result of subdued market conditions weighing on client spending.
Employment and purchasing activity
Employment also rose at its slowest pace in the last ten months in June, although most companies remained confident about the future. Meanwhile, June’s outstanding business remained steady compared to the previous month.
The cost burdens remained moderate in the services sector as input prices rose at their slowest pace since October 2016. Output charges also rose marginally, with some companies stating greater market competition, limiting their ability to increase prices.
Despite the slower rise in activity and new orders, services companies remained optimistic about next year’s business outlook as of June 2017. Their confidence levels edged up to a five-month high due to an improved demand forecast and new projects.
Let’s look at China’s retail sector in the next article.