Chinese Service Sector Growth Slower than Expected in January

Summary

• A private survey shows a slower than anticipated growth in China’s service sector for January.

• The PMI for the sector stood at 52.7, down from 52.9 recorded in December.

• Despite the deceleration, the PMI has stayed in the expansion territory for 13 months straight.

• The services sector remains robust with significant employment, new order growth and activity.

• The broader economy’s weakness may limit growth in the services sector in the coming months.

Chinese Service Sector Growth Slows in January

Monday’s private survey revealed a softer growth pattern in the Chinese services sector than was projected for January. The growth rate decelerated modestly when compared to December, reflecting the ongoing challenges posed by a gradual economic revival.

The Continued Rise of the PMI

According to the survey, the PMI registered a 52.7 in January, underperforming the forecasted 53 and marking a slight decrease from December’s 52.9. Despite the slow-down, the sector displayed growth, as exhibited by the Caixin PMI staying above 50 and maintaining expansion for 13 successive months.

PMI’s Relative Robustness

Notwithstanding the PMI’s slight deceleration from the previous month, it recorded a relatively high value. The Caixin survey emphasised that employment, new order growth and the sector’s total activity continued to be strong. 

Resilience amid Pandemic Challenges

The demand for services has been a consistent driver for the Chinese economy over the past three years, despite challenges faced, especially in manufacturing, due to the impact of COVID-19.

The Dual Role of the PMIs

The two PMIs – Caixin and the official – differ significantly, especially in the size and type of businesses they cover, providing a comprehensive view of the Chinese economy. Thereby helping investors in making informed decisions.

Impact of Monetary Stimulus Measures

Stimulus measures introduced by the Chinese government have provided a significant amount of liquidity in the market, keeping services expenditure buoyant. Data also showed an improvement in foreign demand for Chinese services.

The Continued Economic Slump amid Property Crisis

Despite the strength displayed by the services sector, it has not been able to rejuvenate the Chinese economy completely out of post-COVID doldrums. Last week’s official PMIs indicated the continued contraction of the economy. Indeed, the situation was further aggravated by the ongoing crisis in the vast property sector, as exemplified by the court-ordered liquidation of the beleaguered developer, China Evergrande Group.

The Future of Service Sector Growth

In light of the overall economic weakness, it is predicted that growth within the service sector would be limited in the months to come.

Such affairs in the Chinese economy can have significant implications on forex trading, affecting assets tied to the performance of China’s service sector.

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