China’s services activity expands at quickest pace in 5 months in December thanks to rise in new business

China’s services activity expanded at the fastest pace in five months thanks to a solid rise in new business, a private-sector survey showed on Thursday, lifting the degree of optimism in the sector to a three-month high.

The Caixin/S&P Global services purchasing managers’ index (PMI) rose to 52.9 in December from November’s 51.5, above the 50-mark separating growth from contraction and posting the highest reading since July.

The data, offering a snapshot of business sentiment, was in contrast to an official survey on Sunday, which showed a subindex of services activity shrank again at the end of 2023, raising calls for more stimulus measures in the new year.

Aided by robust new business which expanded at the fastest rate since May, firms attributed the improvement to rising customer numbers and spending.

“The overall number of customers rose slightly in December compared with November,” said a restaurant owner surnamed Jin, based in Hangzhou, a city in the eastern Zhejiang province.

“But still, businesses in 2023 were worse than 2022 due to the macro economic trend.”

Foreign demand for Chinese services also increased last month. Around 214,000 travellers from France, Germany, Italy, the Netherlands, Spain and Malaysia entered China in December after the visa-free policy took effect, up 28.5 per cent from November, according to the National Immigration Administration.

Improved demand conditions led firms to increase their staffing levels as they planned to meet rising business requirements. A subindex of employment returned to expansion in December following November’s contraction.

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Services firms remained upbeat about their business activity in 2024, with the level of positive sentiment increasing to a three-month high, though it was still below the series average.

Taken together with the better-than-expected Caixin manufacturing PMI, the Caixin/S&P’s composite PMI rose to 52.6 last month from November’s 51.6, the highest reading since May.

The vibrancy in the services sector extended to the new year as travel data suggested an improvement in the number of domestic visitors during the three-day New Year’s holiday from Saturday to Monday.

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However, the downbeat PMI survey by the National Bureau of Statistics (NBS) suggested the world’s second-largest economy is still under pressure as the once-mighty property sector fails to show any meaningful rebound, consumers are tightening their belts and factories have been cutting selling prices.

Analysts interpret the divergence between Caixin PMI and the official PMI as differences in their geographic and sector coverage.

To spur growth, China’s central bank made 350 billion yuan (US$49.2 billion) in loans to policy banks through its pledged supplementary lending facility in December, increasing market bets that China would cut interest rates further.

The NBS will release economic indicators including industrial output and retail sales in coming weeks.

South China Morning Post