China services sector activity slips to eight-month low in October, Caixin PMI survey shows

Karen Yeung

Activity in China’s services sector softened slightly in October, marking its slowest expansion in eight months, a private survey showed on Tuesday, as market conditions remain subdued for mainland firms.

The Caixin/Markit services purchasing managers’ index (PMI) eased to 51.1 last month, in line with economists’ forecast in a Bloomberg survey, and down slightly from September’s 51.3. The index stood at its lowest level since February, while remaining above the 50-point mark that separates growth from contraction in the sector on a monthly basis.

The downward momentum in the private survey’s services gauge comes as China continues to give mixed industry signals. The official government PMI, which typically polls a large proportion of big businesses and state-owned enterprises, posted a decrease in October. However, Caixin’s PMI, which features a mix of small- and medium-sized firms, has been showing a steady increase since June.

On Tuesday, the Caixin Composite PMI index, which combines both manufacturing and services sentiment, showed a further modest increase in overall business activity, rising to 52.0 in October, marking its highest level since April and compared to 51.9 in September.

China’s economy continued to recover in general in October, thanks chiefly to the performance of the manufacturing sector. However, business confidence remained weak, constraining the release of production capacity.

Zhengsheng Zhong

“China’s economy continued to recover in general in October, thanks chiefly to the performance of the manufacturing sector,” said Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group, an affiliate of Caixin. “However, business confidence remained weak, constraining the release of production capacity. Structural unemployment and rising raw material costs remained issues. The foundation for economic growth to stabilise still needs to be consolidated.”

Although service sector operating expenses rose solidly in China, prices charged by service providers increased only marginally during October. Service providers recorded a stronger, but still modest, increase in new work from overseas and added to their payrolls at only a marginal rate, Caixin said in a statement.

Overall, the level of positive sentiment regarding the one-year business outlook improved at Chinese firms during October. The upturn was led by stronger optimism at manufacturers, where the outlook hit a six-month high. But sentiment at services companies slipped to the weakest level since July 2018.

The decline in services sentiment comes amid China’s continued trade war with the United States, with both sides hoping to reach final agreement on a “phase one” trade deal to de-escalate tensions.

However, Politico reported on Monday that China is pushing US President Donald Trump to remove more tariffs imposed in September as part of the trade deal. Officials in Beijing have been demanding that Washington take a further step and retract some existing levies on Chinese goods for the first time since the start of the trade war in July 2018. It is a step that has been resisted by Trump officials so far.

The phase one deal, which may be signed later this month by Trump and Chinese President Xi Jinping at a yet-to-be determined location, is widely expected to include a US pledge to scrap tariffs expected for December 15 on about US$156 billion worth of Chinese imports, including mobile phones, laptop computers and toys.

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