China services sector growth slows less than expected - Caixin

Growth in China’s services sector slowed less than expected in August, according to a survey released on Monday.

The Caixin services purchasing managers’ index fell to 55.0 from 55.5 in July, coming in above consensus expectations for a reading of 54.0. A reading above 50.0 indicates expansion, while a reading below signals contraction.

Wang Zhe, senior economist at Caixin Insight Group, said: "Both supply and demand in the sector expanded…Although some firms mentioned that the recent Covid outbreaks affected their operations, the majority reported that business improved."

Craig Botham, chief China+ economist at Pantheon Macroeconomics, said: "August saw the third consecutive reading over 50 for China’s services business activity, even as new outbreaks began to flare up. New orders also only slowed marginally, to 53.6, from 53.8, though new export orders saw a sharper decline, to 47.3 from 47.9, and are already at a level suggesting m/m declines.

"The employment subcomponent was basically steady, but sub-50, despite the reported gains in activity, suggesting a limited level of confidence that the post-Omicron bounce will prove sustainable.

"Inflationary pressures look muted, but margins are coming under pressure. The output price index fell in August, to 50.2, from 50.4, even as the input price index rose. Firm commentary suggests that labour, raw materials, food, and marketing costs all became more expensive over the month. Still, the implied rate of input price inflation is low compared to the last 18 months, so a sudden burst of services inflation remains unlikely."

Botham said that given the ongoing spread of outbreaks in mainland China, further falls in the index in September are expected, with a focus on containment ahead of the October Congress.