Services sector underpins China business growth
CHINESE business activity expanded modestly last month, with sharp differences between a strong expansion in services and the weakest growth in manufacturing in almost a year, the latest Caixin business report released yesterday shows.
And the combined data of both sectors showed a contraction in total employment in September to its lowest level in more than two years, which analysts said could test policy-makers’ commitment to continued reform.
The seasonally adjusted Caixin China General Services Business Activity Index — or services purchasing managers’ index — looking at small and medium private companies, rose to 53.1 last month from 51.5 in August — the largest increase in three months — according to the survey conducted by financial information service provider Markit for Caixin Media.
In contrast, the rise in manufacturing production was the weakest since October 2017.
“The data indicated that an improved services sector performance was broadly offset by softer manufacturing growth,” Caixin said.
The Composite Output Index was little changed at 52.1 from August’s 52.0, signaling that the rate of activity growth remained lackluster compared with earlier in the year.
New business followed a similar trend, with services companies registering a stronger rise in new orders, the Caixin report said.
Although modest, the latest increase in services sector sales was the fastest since June, with some firms linking growth to new product offerings and increased client bases.
Meanwhile, new business broadly stagnated for manufacturing companies after a marginal rise in August.
As a result, composite new order inflows continued to expand at a relatively subdued pace, with growth picking up only slightly from August’s 26month low.
Staffing levels fell across both the manufacturing and services sectors in September.
“Employment in the services sector contracted abruptly and that sub-index fell to its lowest level since March 2016,” said Zhong Zhengsheng, director of macroeconomic analysis at CEBM Group.
For manufacturers, workforce numbers fell at a pace that, although modest, was the fastest for 14 months.
Companies across both sectors said restructuring and the non-replacement of voluntary departures had contributed to lower employment levels. Combined headcounts fell at the fastest rate since August 2016.
“What we should be wary of is that overall employment contracted in September, with the sub-index hitting its lowest since August 2016,” Zhong said. “The deterioration in employment will test policy-makers’ determination in pressing ahead with reforms.”
Prices charged by service providers declined for the first time in 13 months, while input costs rose at their fastest since January.
“Reflecting that, the sub-index of business expectations, which gauges service companies’ confidence over the next 12 months, edged down in September,” Zhong said.
Companies are generally optimistic that output will increase over the next year. But optimism fell to a nine-month low among manufacturers on concerns of global trade tensions and tougher environmental policies. Confidence also fell across the services sector.