China services sector extends solid expansion in December

  • Continued resilience in the services sector, which accounts for more than half of China's economy, could partly offset pressure from a manufacturing slowdown, a cooling real estate market and trade frictions with the U.S.
  • But official data suggest consumer demand and confidence have been faltering recently as the economic outlook grows more cloudy.
A Chinese flag in the Putuo Temple in Nongla Scenic Area, China on Oct. 19, 2018.
Artur Widak | NurPhoto | Getty Images
A Chinese flag in the Putuo Temple in Nongla Scenic Area, China on Oct. 19, 2018.

China's services sector extended its solid expansion in December, offering some cushion for the slowing economy, a private survey showed on Friday.

The Caixin/Markit services purchasing managers' index (PMI) rose to a six-month high of 53.9 in December, up from 53.8 in the previous month and well above the 50.0 mark separating growth from contraction.

It had slipped to a 13-month low in October.

New export business rose at the fastest rate in six months as firms stepped up efforts to attract orders from overseas. Total new order growth eased slightly, however, pointing to softening domestic demand.

Continued resilience in the services sector, which accounts for more than half of China's economy, could partly offset pressure from a manufacturing slowdown, a cooling real estate market and trade frictions with the United States.

But official data suggest consumer demand and confidence have been faltering recently as the economic outlook grows more cloudy.

"As the economy slows, all sectors would be affected including the services sector," said Zhang Yi, chief economist at Zhonghai Shengrong Capital Management.

Indeed, the business survey showed job creation in the sector eased to only a marginal pace as business confidence remained subdued.

Analysts at Chinese investment bank CICC said in a note on Thursday predict that employment pressure will likely be seen on many fronts this year, including in the industrial, construction, and services sectors.

The latest survey also showed operating expenses rose to a three-month high in December, with firms citing rising raw material prices and higher salary costs. Companies were able to raise their prices to customers only marginally in response, suggesting greater pressure on profit margins.

Caixin's composite manufacturing and services PMI, also released on Friday, rose to 52.2 in December from 51.9 in November.

However, total new orders slowed in December while the employment gauge shrank further into negative territory, implying increasing challenges to stabilizing employment, according to Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group.

In a key economic meeting in December, the country's top leaders said they would prioritize employment in economic policies, according to Xinhua.

Economic conditions in China are widely expected to get worse before they get better, as a raft of growth boosting measures in recent months will take some time to be felt.