China PMI: Services Activity Gains Momentum Amid Stimulus Efforts

China PMI: Services Activity Gains Momentum Amid Stimulus Efforts

China's services activity expanded at the fastest pace in three months in October, bolstered by signs that Beijing's substantial stimulus initiatives were positively influencing business conditions. According to a private-sector survey, the Caixin/S&P Global services purchasing managers' index (PMI) climbed to 52 in October from 50.3 the previous month, signaling expansion as the 50-mark separates growth from contraction.

The recent PMI reading corresponds with the official PMI released last week, which indicated that non-manufacturing activity, including services and construction, had resumed its growth trajectory. “The Caixin service PMI rebounded and exceeded market expectations, consistent with the manufacturing PMI data,” remarked Zhang Zhiwei, president and chief economist at Pinpoint Asset Management.

Despite this positive development, China’s economy registered its slowest growth rate in the third quarter since early 2023, with the struggling property sector showing minimal signs of recovery as Beijing strives to meet its annual growth target.

Stimulus and Economic Outlook

In September, Beijing implemented monetary stimulus and support measures for the property sector, with a top Communist Party meeting affirming the commitment to “necessary spending” to bolster growth.

“I anticipate the economy may stabilize in the fourth quarter as policy easing through monetary and fiscal channels aids in alleviating deflationary pressures,” stated Zhang. However, he cautioned that it remains premature to confirm if this stabilisation will prove sustainable.

The Caixin survey revealed new business escalated slightly to 52.1 from 51 in September. However, the influx from abroad diminished. As a consequence of the new business, service providers expanded employment for the second straight month, albeit with increased capacity pressures.

Achieving China’s 2024 growth target is contingent upon a consistent recovery in consumer demand, warned Wang Zhe, senior economist at Caixin Insight Group. Input price growth slowed to a three-month low, but companies continue to confront rising material and energy costs.

Overall confidence among businesses soared to a five-month peak, motivating some to heighten promotional efforts to support sales growth in the upcoming year. Alongside manufacturing PMI, the Caixin/S&P Global Composite PMI also increased, reaching 51.9 from 50.3 in September.

While recent figures suggest climbing deflationary pressures, decreased export growth, and weakened loan demand pose challenges for economic recovery, Wang Zhe asserted, “Achieving China’s 2024 growth target will rely on a persistent recovery in consumer demand, necessitating policy initiatives that enhance household disposable income.”