China’s services sector exhibited resilience in April, although the pace of expansion slightly slowed, according to the latest Caixin Purchasing Managers’ Index (PMI) report. Despite facing rising costs, the sector saw an uptick in new orders and a solid increase in business sentiment, providing optimism for a sustained economic recovery.
The Caixin/S&P Global services PMI dipped to 52.5 in April from 52.7 in March but remained in expansionary territory for the 16th consecutive month. This growth comes in the backdrop of China’s faster-than-expected first-quarter economic expansion. However, the economy still grapples with challenges such as a prolonged property slump and sluggish domestic demand.
Wang Zhe, Senior Economist at Caixin Insight Group, remarked, “The strong start to the year is consistent with the Caixin manufacturing and services PMIs, which have remained in expansionary territory for several straight months.”
New business in April reached its highest level since May last year, buoyed by improved overseas demand and growth in tourism activity. This led to the fastest pace of growth in new export orders in ten months. Consequently, business confidence among Chinese service providers for the next 12 months surged to its peak for the year.
Despite facing cost pressures from rising material, labor, and energy prices, firms managed to keep the uptick below the long-run survey average. In response, they increased prices charged to customers but remained cautious in filling vacancies left by departures.
Wang emphasized the importance of maintaining the current economic recovery momentum, stating, “Consistent efforts should be made to ensure earlier policies are implemented effectively and promptly, maintaining the current economic recovery momentum and eventually improving overall market expectations.”
The Caixin survey, which tends to focus more on smaller, export-led firms, differs from the broader official PMI, which indicated a sharp slowdown in services sector activity last month. The composite PMI, tracking both services and manufacturing sectors, rose to 52.8 in April from 52.7 in March, marking its fastest pace since May 2023.
China’s economy continues to struggle with a solid post-COVID revival, with confidence and demand still affected by the prolonged property sector crisis. While the first-quarter GDP report showed pockets of strength, economists remain cautious, believing that a robust revival is still distant.
Analysts and investors advocate for China to pursue structural reforms alongside greater stimulus measures to foster a stronger and sustainable economic recovery. This dual approach is seen as crucial for overcoming the current challenges and steering the economy towards stable growth in the long term.
