China’s services sector growth falls to eight-month low: Caixin PMI

China’s services sector expanded more slowly than expected in June, hitting its weakest pace in eight months, while confidence hit a four-year low, a private sector survey released Wednesday showed, suggesting the world’s second-largest economy is still not safe.

The Caixin services PMI fell to 51.2 from 54.0 in May. That was below economists’ estimate of 53.4 but still indicated an 18th straight month of expansion, with anything above 50 indicating growth.

“The sharp decline in the Caixin services PMI is another sign that China’s economy lost some momentum last month. Its official counterpart also fell, with the average of both falling to their lowest level since August,” said Zichun Huang, China economist at Capital Economics.

“However, the manufacturing sector continued to post solid gains and we continue to expect economic activity to remain relatively strong in the coming months, supported by fiscal stimulus and strong exports.”

Since January 2023, when China abandoned its zero-COVID-19 case policy, the Caixin Services PMI has consistently shown monthly growth.

Despite the ongoing expansion, the latest data pushed China’s CSI 300 index down 0.4% in early trading, contrasting with other major Asian indices.

Business confidence among service providers fell to its lowest level since March 2020 due to global economic concerns and increased competition.

After a short-term hiring boost in May, service companies cut hiring in June.

These indicators show that China, the world’s second-largest economy, still needs further economic stimulus.

Market attention now turns to the third plenary meeting of leaders in mid-July, where potential reforms could be announced.

China faces ongoing economic challenges, including deflationary pressures, cautious consumer sentiment and financial stress in the real estate sector.

The real estate market is struggling with significant debt levels and reduced buyer interest, which poses risks to overall economic stability.

China plans to grow by around 5 percent this year, requiring targeted reforms to address housing market problems as well as broader economic reforms to bolster investor confidence and maintain growth momentum.

Fitch’s recent downgrade of China’s long-term economic outlook to negative reflects concerns about the country’s heavy reliance on the real estate sector and the risk of persistent deflation.

Policymakers must carefully address these challenges as they seek to stimulate economic growth while ensuring economic resilience.