China Services Activity Gauge Signals Pickup in Growth
The index has remained above the 50 mark for two years
A private gauge of China’s service activity expanded at a faster clip at the end of 2024 as Beijing moved to boost domestic demand.
The Caixin services purchasing managers index rose to 52.2 in December from 51.5 in November, Caixin Media Co. and S&P Global said Monday.
The index has remained above the 50 mark separating contraction from expansion for two years, Caixin said.
Both business activity and total new orders increased last month. Promotional efforts and better underlying demand supported the latest increase in new sales, according to service providers surveyed by Caixin.
However, orders placed by overseas clients fell, with the subindex dropping to the lowest level since December 2022.
Employment in the services sector contracted as businesses worked to reduce costs while improving efficiency, said Wang Zhe, a senior economist at Caixin Insight Group.
Companies were cautious about hiring, and market optimism weakened, Wang added. The subindex tracking expectations of future activity remained in expansionary territory but fell by more than three points.
“Competitive markets together with uncertainties over global trade were the main concerns of the surveyed businesses,” said Wang.
The Caixin services PMI pointed in the same direction as the official gauge that covers both service and construction activity. The official nonmanufacturing PMI jumped to 52.2 in December from November’s 50.0, with the subindex tracking service activity increasing to 52.0 last month.
That contrasted with manufacturing PMIs, with both official and Caixin gauges pointing to slower growth in the sector in December.
On the whole, the PMIs suggest that China’s economy gained momentum in December, with faster growth in services and construction more than making up for a slowdown in manufacturing, Capital Economics said in a note.
China’s ramped up policy support toward the end of last year has clearly provided a near-term boost to economic growth, assistant economist Gabriel Ng said, with increased fiscal support likely to keep lifting growth in the short term.
“But the boost probably won’t last more than a few quarters,” he added, with President-elect Trump likely to follow through on tariffs and the Chinese economy’s structural imbalances continuing to weigh.
Economists will be watching to see how Chinese policymakers respond to the tariff threat, and what they roll out next to tackle persistent domestic issues like the protracted property slump and weak demand.
Monday’s PMI print comes on the heels of fresh promises by the People’s Bank of China to support the economy.
Officials at the central bank’s annual work conference last week promised to better support technological innovation and stimulate consumption. They have also reiterated pledges to cut interest rates, as well as lower requirements on the amount of cash lenders must hold as reserves “at an appropriate time,” to help the economy, according to an official readout published Saturday.
Goldman Sachs analysts expect more high-profile monetary policy easing this year, including two 20-basis-point policy rate cuts in the second and fourth quarters.
In anticipation of possible tariff hikes from the incoming Trump administration, the Chinese leadership has vowed to make boosting domestic consumption a top priority for the year of 2025, with officials hinting that a muscular fiscal package will be revealed at March’s annual legislature session.
“The external environment is expected to become more complex this year, requiring early policy preparation and timely responses,” said Wang, the Caixin Insight Group economist.
“Future policy efforts should focus more on increasing household income and improving people’s livelihoods, with particular attention paid to increasing socially disadvantaged groups’ ability and willingness to spend,” Wang said.