Supported by an influx of new business, China's service sector experienced an impressive expansion in July, marking the 19th consecutive month of growth, as reported by S&P Global on Monday. The seasonally adjusted Caixin/S&P Global China service purchasing managers index (PMI) reached 52.1 in July, rising from 51.2 in June.
This figure significantly exceeds the critical 50-point threshold, which indicates a shift from contraction to growth, according to the latest monthly survey by S&P Global. "Driving the latest rise in services activity was faster new business growth," S&P Global stated. The report indicated that incoming new business surged at a solid pace in July, supported by ongoing enhancements in underlying demand conditions and an expansion of service offerings.
In response to this growing demand, service sector managers in China ramped up hiring in July. S&P Global noted, "To support ongoing workloads, Chinese service providers hired additional employees, including temporary staff. The rate at which employment levels rose was the fastest in nearly a year." The report emphasizes the significant impact of employment growth on the sector's expansion.
However, with the increase in business activity, managers reported rising operational costs. "Panelists often mentioned that higher input material, wage, and transport costs had underpinned the increase in cost burdens," as stated by S&P Global. Despite these escalating costs, service sector managers expressed their inability to pass these costs onto customers, resulting in unchanged rates for their services.
Caution emerged as a recurring theme in the 12-month outlooks of managers within the service sector. The report highlighted a "relatively subdued optimism in July," marking the second-lowest level of business confidence since March 2020, only marginally above June's low. Firms displayed cautious optimism regarding anticipated improvements in market conditions and business development.
The Caixin/S&P Global China services PMI was compiled from surveys distributed to 650 private and state-owned service companies between July 11 and July 23. Additionally, S&P Global reported that China's composite PMI, which combines both the manufacturing and service sectors, registered at 51.2 in July, a decrease from 52.8 in June, yet comfortably remaining above the pivotal 50-marker.
It is worth noting that while China's service sector showed improvement, the manufacturing sector faced increased pressure during the same period, according to S&P Global findings. $HONGKONG50.