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.

The Caixin/S&P Global Services Purchasing Managers’ Index (PMI) rose to 50.4 in October from September’s nine-month low is 50.2. The growth rate also remained much slower than average in the first half of the year.

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.

New orders in the services sector grew at the weakest pace in 10 months last month, Caixin research showed, offsetting higher growth from the boom in the tourism industry seen during eight-day national holiday.

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.

Market conditions for the manufacturing sector have been sluggish compared to the services sector


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.

China’s economy performed better than expected growth in the third quarter, however, economists say a weak real estate sector, declining travel demand, local government debt and geopolitical tensions could weigh on the outlook.

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