Expansion in China’s services industry slowed last month from the previous month, a private survey showed, providing more evidence that the key driver of the nation’s post-COVID-19 recovery is cooling.
The Caixin China services purchasing managers’ index declined to 53.9 from 57.1 in May, Caixin and S&P Global said in a statement yesterday, the weakest since January.
Any reading above 50 indicates an expansion from the prior month, while a number below that suggests contraction.
The drop indicates the stronger leg in China’s K-shaped economic recovery this year is losing momentum, as consumers scale back spending on services, such as travel and restaurants amid elevated youth unemployment and a gloomy income outlook. The data will likely spur more calls for the government to ramp up measures to support growth.
“The pressure is mounting to stabilize employment,” Jones Lang Lasalle Inc chief economist and head of research for Greater China Bruce Pang (龐溟) said.
“Measures already introduced have mainly focused on providing a floor to economic growth, but we need more comprehensive, larger-scale and stronger-than-expected policy support at a time when market demand and confidence have not yet had a clear recovery,” he said.
The services recovery driven by increased mobility appears to have reached its peak, Oversea-Chinese Banking Corp (華僑銀行) Greater China research head Tommy Xie (謝東明) said.
“The next task for China is transitioning from a recovery-driven growth model to an expansionary growth model,” Xie said. “That will require policy support.”
Still, some economists cautioned that Beijing might not rush to take radical action.
“It is still unclear to me if the government will launch aggressive policy stimulus at this stage,” Pinpoint Asset Management Ltd (保銀私募基金管理) chief economist Zhang Zhiwei (張智威) said. “The government may continue to hold a ‘wait and see’ stance for now.”
Investors are watching closely for any signal of more stimulus when the Chinese Communist Party’s Politburo meets later this month.
The Caixin survey focuses on smaller companies compared with the official services PMI.
Results published last week for the government-led poll showed the services expansion moderating for a third straight month. The manufacturing industry is struggling to rebound from months of contraction, official data showed.
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