China’s services sector experienced a notable surge in May, marking its most rapid growth in 10 months. This aligns with official data, reflecting strong business activity and increased market demand.
According to Caixin Media Co. and S&P Global, the Caixin services purchasing managers index rose to 54.0 in May from 52.5 in April. This index, which has remained in expansion territory for 17 consecutive months, reached its highest level since July 2023.
A reading above 50 indicates expansion, while below 50 indicates contraction.
“The jump in the Caixin services PMI means that the survey data for May now suggest economic momentum remained fairly robust last month,” said Zichun Huang, China Economist at Capital Economics.
“We think strength in exports, a step-up in fiscal support and new property stimulus will continue to drive a cyclical pick-up over the coming months. But this may not be sustained for long given the structural challenges facing the economy.”
However, China’s National Bureau of Statistics reported an unexpected contraction in manufacturing activity in May, indicating an uneven economic recovery in the world’s second-largest economy.
While China’s economy had a robust start in the first quarter, prompting upward revisions in growth forecasts by the IMF and Moody’s, it continues to face challenges from a prolonged property slump.
Business activity and total new orders reported by surveyed service providers grew for the 17th consecutive month, with the fastest pace since July and May of the previous year, respectively, according to Caixin.
Export orders also experienced a fourth consecutive month of accelerated growth, remaining in expansion territory for a ninth consecutive month.
Moreover, employment in the services sector returned to growth after three months of decline, which is a positive sign for the Chinese economy. This is especially important given the struggles with a prolonged property downturn and subdued domestic consumption.