World Economy

China's May Caixin services PMI falls to 51.2 vs 51.8 in April

China's Caixin services PMI slips in May
China's Caixin services PMI slips in May

China's all-important service economy, heralded as the country's key growth engine, decelerated in May, a private survey showed on Friday.

Caixin's services Purchasing Manager's Index (PMI) eased to a three-month low of 51.2, from 51.8 in April. It was the second consecutive month of declines, Caixin noted in a statement.

A reading above 50 indicates expansion while one below indicates contraction.

Slow business orders, marginal job creation and lower production among manufacturers were key factors that underpinned May's tepid performance, Caixin said.

Moreover, business optimism slid to its lowest level so far this year, it added.

Market reaction was muted, with the benchmark Shanghai Composite 0.1 percent lower and the yuan flat at around 6.58 per dollar.

Friday's report echoed similar declines to the government's official services gauge that was released earlier this week, which showed the index dropping to 53.1 in May from the previous month's 53.5 reading. A reading above 50 indicates expansion while one below indicates contraction.

The services sector, whose biggest components include real-estate and financial services, now accounts for the bulk of gross domestic product and is crucial to Beijing's economic transition to consumer-driven growth. Last week, China Securities News reported that Beijing would open up certain areas, including education and healthcare to foreign investment, without giving a time-frame.

Over the past year, policymakers have unleashed a flurry of interest rate cuts and reserve requirement ratio (RRR) reductions for banks, as well as other stimulus efforts, but strategists widely agree that more support is needed to bolster overall economic momentum.

"The government needs to continue to push forward stabilizing measures to help the economy recover. It should also relax the control and regulation of the services sector to enable it to realize its growth potential and to facilitate the transformation and healthy development of the economy," said Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group.

But from an investor's perspective, slowing momentum isn't necessarily an issue.

Restaurants, entertainment and lifestyle services remain hot investment areas, noted Choong Han Ching, investment manager and principal at Kriya Capital. "Those are the three areas that are booming in China."

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