China’s services sector grew slower than expected in June, marking its weakest pace in eight months, while confidence hit a four-year low, according to a private-sector survey released on Wednesday, suggesting that the world’s second-biggest economy is still not out of the woods.
The Caixin services purchasing managers’ index (PMI) fell to 51.2 from May’s 54.0. This figure was lower than the economists’ estimate of 53.4 but still indicated expansion for the 18th consecutive month, as any number above 50 signifies growth.
“The sharp fall in the Caixin services PMI is another sign that China’s economy lost some momentum last month. Its official counterpart also declined, with the average of the two dropping to its lowest level since August,” said Zichun Huang, China Economist at Capital Economics.
“But the manufacturing sector continued to make steady gains, and we still expect economic activity to hold up relatively well in the coming months, supported by fiscal stimulus and strong exports.”
Since China abandoned its zero-COVID policy in January 2023, the Caixin services PMI has consistently signalled monthly growth.
Despite the ongoing expansion, the latest data prompted a 0.4 per cent decline in China’s CSI 300 index during early trading, contrasting with other major Asian indexes.
Business confidence among service providers sank to its lowest level since March 2020 due to global economic concerns and heightened competition.
After briefly increasing employment in May, service companies scaled back hiring in June.
These indicators highlight that China, as the world’s second-largest economy, still requires further economic stimulus.
Market attention now turns to the upcoming third plenum leadership meeting in mid-July, where potential reforms may be announced.
China faces ongoing economic challenges, including deflationary pressures, cautious consumer sentiment, and financial stresses within the real estate sector.
The property market, in particular, faces difficulties stemming from substantial debt levels and reduced buyer interest, posing risks to overall economic stability.
Looking forward, China aims for approximately 5 per cent economic growth this year, requiring targeted reforms to address real estate market issues and broader economic reforms to bolster confidence among investors and sustain growth momentum.
Fitch’s recent downgrade of China’s long-term economic outlook to negative reflects concerns over the country’s heavy reliance on the real estate sector and persistent deflation risks.
Policymakers must navigate these challenges carefully, aiming to stimulate growth while ensuring economic resilience.