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China Service Sector Growth Accelerates In July

chinaservices july03 03aug22 lt

China's service sector growth gained momentum in July driven by a recovery in operating conditions and client demand following the easing of the pandemic related restrictions, data released by S&P Global showed on Wednesday.

The Caixin services Purchasing Managers' Index rose to 55.5 in July from 54.5 in June. A score above 50.0 indicates expansion in the sector.

The indicator signaled the sharpest pace of expansion in the sector since April 2021.

Overall sales grew the most since October 2021, underpinned by improved demand conditions and rising customer numbers. While domestic demand strengthened further, new export work continued to fall.

However, firms were cautions about staffing. Employment dropped moderately in July as firms tried to contain costs. There was a renewed fall in backlogs of work. For the first time in over a year, the level of work-in-hand had dropped.

On the price front, the survey showed that cost inflation accelerated for the first time since March. At the same time, fees set by Chinese services companies rose at a marginal rate that was similar to those seen in the prior two months.

Sentiment among service providers improved in July on expectations that COVID-19 virus will be fully contained, and customer demand will strengthen further. The degree of positive sentiment hit its strongest since November 2021.

At 54.0 in July, the Composite Output Index fell from June's 18-month high of 55.3. Nonetheless, the index signaled a solid expansion as the quicker rise in services activity was offset by a marked slowdown in manufacturing production growth.

The third quarter will therefore be a crucial period to get the economy back on track, Wang Zhe, Senior Economist at Caixin Insight Group said.

As the authorities have made it clear that no ultra-massive simulative measures will be forthcoming, effective implementation of existing policies is a more practical option.

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