China’s Services Sector Showing Signs of a Sustained Economic Recovery Amid Cost Pressures

In recent months, China’s services sector experienced a slight slowdown in its activity expansion due to rising costs. However, there was growth in new orders and an increase in business sentiment, suggesting a possible sustained economic recovery. According to a private sector survey released on Monday, the Caixin/S&P Global services purchasing managers’ index (PMI) decreased to 52.5 from 52.7 in March, remaining in expansionary territory for the 16th consecutive month. Despite the slight dip, new business hit its highest point since May of the previous year, with growth in new export orders being the fastest in 10 months, driven by better overseas demand and tourism activity.

This boosted business confidence among Chinese service providers, reaching the highest level of the year. However, companies continued to face cost pressures, primarily due to rising input prices for materials, labor, and energy. As a result, companies increased the prices charged to their customers but were still reluctant to fill vacancies created by departures. The senior economist at Caixin Insight Group emphasized the importance of ensuring effective and prompt implementation of earlier policies to maintain current economic recovery momentum and improve overall market expectations.

China’s economy has struggled to fully recover from the effects of COVID-19 pandemic with prolonged impacts from property sector crisis affecting confidence and demand; however there are pockets of strength that have raised hopes for a steady recovery throughout the year. The composite PMI which tracks both services and manufacturing sectors increased to 52.8 in last month from 52.7 in March; this is the fastest pace since May 2023. Despite these challenges economists believe that robust revival is still a ways off and structural reform efforts must be accompanied by greater stimulus measures if China wants to foster stronger sustainable economic recovery