China Services PMI Could Indicate a Weaker Path for Its Economy

According to a report by Markit Economics, the Caixin China services PMI (purchasing managers’ index), released on March 2, 2017, stood at 52.6 in February 2017, compared to 53.1 in January. 

The value didn’t beat the market’s expectation of 53.3. The weaker number compared to January indicated weakening business activity in the country.

New export orders and production volumes grew more slowly in February compared to January. Employment growth also slowed in the month. China’s manufacturing PMI showed weak movement in February 2017.

China’s economy has depended primarily on manufacturing and exports for a long time, but that’s starting to change. China is shifting to a consumption-based economy from a low-cost manufacturing hub.

According to McKinsey’s China Consumer Report, Chinese (ASHR) (MCHI) consumers are becoming more selective about where they spend their money. They’re shifting their focus from products to services and from the mass-market to the premium segment. This change shows that the economy is transitioning, and the services industry should see more support.

The contribution of the services industry to China’s economy needs to improve more to support China’s (FXI) (YINN) growth. As China is an important trading partner for many countries across the globe (ACWI), any improvement in its economic conditions is a positive sign for the global economy.

However, the gradual fall in the country’s services PMI indicates that the service sector has shown weak performances in the past two months. Slower domestic demand and export orders were the main contributors to this weakness.

In the next part of this series, we’ll analyze the performance of Japan’s services PMI in February 2017.