Growth in China’s services sector decelerated in August, despite the summer travel season, as companies faced mounting concerns over rising costs, according to a private-sector survey released on Wednesday. The Caixin/S&P Global services purchasing managers’ index (PMI) dipped to 51.6 in August from 52.1 in July, remaining above the 50-mark, which separates expansion from contraction on a monthly basis.
The survey revealed a continued increase in new business, extending the positive trend that began in January 2023. However, the growth rate slowed compared to July. While overseas client interest in the tourism industry helped boost export business, the overall pace of expansion was softer. On the other hand, business optimism rose to its highest level since May.
Despite positive business sentiment, job growth in the services sector did not follow suit. Employment levels dropped in August after a rise in July, with many firms citing the need to reduce costs through redundancies. Some companies also experienced voluntary resignations.
Rising input prices added further pressure, with the rate of cost inflation reaching its highest level since June 2023. In contrast, selling prices fell for the first time in seven months, with the most significant decline since April 2022. Increased competition prompted service providers to offer discounts and lower prices to sustain sales.
The broader economic picture was mixed. The composite PMI, which includes both the manufacturing and services sectors, held steady at 51.2 in August, unchanged from July. While manufacturing output saw faster growth, the services sector’s slower expansion tempered the overall results.
Analysts have expressed concerns that the combination of external challenges and weak domestic demand could put China’s 2024 growth target of “around 5%” at risk. Citi analysts noted that the economy faced dual pressures in August, including weather shocks and soft demand, signaling further obstacles ahead for sustainable economic growth.
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