China’s Services Sector Growth Slows, Calls for Economic Stimulus Rise

A private-sector survey indicated that China’s services activity expanded at its slowest pace in eight months in June, with confidence hitting a four-year low.

The Caixin/S&P Global services purchasing managers’ index (PMI) dipped to 51.2 from 54.0 in May, the lowest reading since October 2023. Meanwhile, the sector maintained expansion for the 18th consecutive month, as the 50-mark separates expansion from contraction.

The survey, which primarily covers private and export-oriented companies, echoed the findings of an official PMI released earlier, revealing a five-month low in services sector activity. China’s economy has exhibited uneven growth recently, prompting calls for additional policy support to meet a growth target of approximately 5%.

In June, the new orders subindex dropped to 52.1 from 55.4, while overseas demand softened slightly despite robust exports in May. Business confidence levels have decreased to the lowest point since March 2020, driven by concerns over the global economy and heightened competition. Service providers scaled back hiring after briefly adding employment in May.

On a positive note, slower inflation rates for input and output prices offered relief to business owners grappling with elevated material, labor, and transport costs. The composite PMI, which monitors both the services and manufacturing sectors, decreased to 52.8 from 54.1.

Attention is now turning to the upcoming third plenum leadership meeting in mid-July, where potential reforms may be announced. Policy advisers suggest that measures redistributing income from central to local governments are likely to be prioritized, aiming to reduce reliance on land sales.

Wang Zhe, a senior economist at Caixin Insight Group, emphasized the importance of fiscal and tax reforms in instilling more optimistic expectations among market participants.