The expansion of the services sector in China suffered a setback in August due to sharp competition, according to a research on private companies. The August reading for the Caixin China services purchasing managers’ index (PMI) was 51.6, a drop from July’s 52.1.
Although the current score over 50 still signifies growth within the sector, the survey displays a standstill in momentum for a sector that made up nearly 57% of China’s GDP in the first half of 2024.
The survey also highlighted a shift in the services sector employment, from growth to downsizing. For the fifth time within seven months, the indicator fell into the negative due to firms seeking a cost-effective approach to employment, thus putting a strain on the labour market. According to Senior Economist at Caixin Insight Group, Wang Zhe, the dwindling workforce combined with decreased business activities resulted in minor increases in pending work.
In recent times, China’s administration has continued efforts to bolster the services sector as a solution to uphold consumer confidence, especially considering the ongoing property market downturn. Measures recently introduced to enhance tourist experiences include the relaxation of visa prerequisites and the implementation of more user-friendly mobile electronic payment systems for foreigners.
China has lifted visa requirements for 22 nations, Ireland included, and has made it compulsory for all hotels to accept foreign occupants. Despite these efforts leading to a nearly 130% surge in China visits to 17.25 million within the year’s first seven months, this figure remains about 40% below the 2019 count prior to the coronavirus outbreak.
According to the Caixin PMI, firms within the services sector remain hopeful of a market upturn. However, optimism is being stifled by the strain on profit margins due to increasing input costs and falling output prices.
Dr Wang further stated that rising prices for raw materials, freight and wages have led to increased pressures on input costs. This subsequently pushed the gauge to its peak since June 2023. In contrast, output prices saw a decrease for the first time in seven months, hitting its lowest since April 2022. As competition remains fierce, businesses are prioritising price reduction in order to boost sales.
The manufacturing PMI of Caixin rebounded to a phase of growth in August, after experiencing a decline in July. However, with a value of 50.4, it marked the second smallest figure of the year. The survey also indicated a downturn in exports for the first time in eight months, due to a diminished desire for consumer products in foreign markets.