China’s services activity expanded at the fastest pace in four months in May, a survey sponsored by Caixin showed Monday, providing a cushion to the economy amid the first contraction in the manufacturing sector in almost a year.
The Caixin China General Services Business Activity Index was 52.8 in May, up from 51.5 in April and the strongest reading since January’s 53.1, according to a survey of purchasing managers compiled by international information and data analytics provider IHS Markit.
A reading above 50 indicates expansion, while a number below that points to contraction.
Strengthening activity in services industries contrasts with weakness in China’s manufacturing sector, with the May reading of the Caixin China General Manufacturing Purchasing Managers’ Index (PMI) released last Thursday falling to 49.6, the first contraction since June 2016.
“The improvement in the services sector bolstered the Chinese economy in May,” said Zhong Zhengsheng, director of macroeconomic analysis at CEBM Group, a subsidiary of Caixin Insight Group. But he described the deterioration in the manufacturing sector as “worrying” and warned that the divergence between the two surveys could widen further.
China’s economic growth showed signs of cooling in April as increases in the key activity indicators of industrial production, investment and consumption all softened, a sign that intensifying government measures to rein in financial risks and deflate regional property bubbles are taking effect. The NBS is due to announce May data next week.
Gross domestic product (GDP) rose by 6.9% in the first quarter year-on-year, the second-straight quarterly acceleration and above the government’s full-year target of around 6.5%. Many analysts expect economic growth to slow over the rest of the year to levels close to the official goal, as policy makers focus on curbing financial risks and investment in the property sector moderates.
The Caixin services survey is consistent with the acceleration in the non-manufacturing PMI released last week by the National Bureau of Statistics (NBS), which showed a reading of 54.5 for May, up from 54.0 in April. The NBS’s manufacturing PMI was unchanged at 51.2 last month, which was the weakest reading since September, but better than many analysts were expecting.
Services industries — which include finance, real estate services and marketing, transport, and retailing — have become an increasingly important part of the Chinese economy, reflecting a shift away from its dependence on traditional heavy-industry manufacturing and exports.
Last year, they accounted for 51.6% of China’s economic output, 1.4 percentage points more than in 2015, and contributed to nearly 60% of the growth in gross domestic product, according to the NBS.
Services tend to be more labor intensive than manufacturing, and policymakers are counting on growth in these industries to create more jobs.
The Caixin survey showed that services companies continued to add workers in May, although the rate of job creation eased to the weakest in the current nine-month stretch of above-50 readings. Companies also reported robust demand from clients last month, which led new orders to increase at the quickest rate seen this year.
Lifted by the strong performance in the services sector, the Caixin China Composite Output Index, which covers manufacturing and services companies, rose to 51.5 in May from April’s 10-month low of 51.2. But it was nonetheless the second-lowest reading since September 2016.