China’s services business is growing despite weak sales and limited employment

China’s services business grew at a slightly faster pace on Friday, a private sector survey showed, with sales growing at the slowest pace in 10 months and employment stagnating as business confidence declined.

The vast services sector, which accounts for about 48 percent of China’s jobs, rebounded strongly earlier this year, but analysts say slow growth in household incomes and uncertainty in the labor market raise questions about the sustainability of the industry’s growth.

A 50-point boundary separates expansion and contraction of activity.

The services sector, which is strongly linked to youth employment, has returned to pre-pandemic levels by 90 percent, said Xing Zhaopeng, senior China strategist at ANZ.

However, he added that the sector is unlikely to rebound beyond expectations.

However, with reports of increased foreign visitors, overseas demand for Chinese services has further improved.

A bumpy road ahead for the Chinese economy due to an unexpected decline in production

The slowdown in sales growth has made companies more cautious when it comes to recruitment. Employment in the sector was unchanged in October, having increased in each of the previous eight months.

Amid pent-up demand, overall optimism declined for the fourth month in a row and was at its lowest level since March 2020.

Prices charged by service companies rose at a faster pace as they tried to pass on higher production costs to customers, although the rate of input inflation was the slowest since June 2022.

The Caixin/S&P composite PMI, which covers both manufacturing and services activities, fell to 50.0 from 50.9 in September, marking the lowest reading since December 2022.

Market conditions for the manufacturing sector were sluggish compared to the services sector, said Wang Zhe, an economist at Caixin Insight Group.