China's services activity growth hits 8-month low, Caixin PMI shows

China’s service sector experienced a slowdown in June 2023, as indicated by the Caixin/S&P Global services purchasing managers’ index (PMI) which dropped to 51.2 from 54.0 in May. This is the lowest reading since October 2023, and suggests that more economic stimulus may be needed to maintain growth. The survey focuses on private and export-oriented companies and aligns with a broader official PMI, showing that the service sector activity hit a five-month low.

The slowdown is attributed to a decrease in new orders and slower growth in overseas demand, despite robust exports in May. Business confidence also reached a four-year low, with concerns about the global economy and increasing competition. This led to a reduction in hiring compared to May.

Despite these challenges, service providers experienced less pressure on both input and output prices compared to previous months, offering some relief from rising costs for materials, labor, and transportation.

The Caixin/S&P’s composite PMI, which monitors both the service and manufacturing sectors, also dropped in June, indicating a general slowdown across the economy. The focus now is on a leadership gathering in mid-July, known as the third plenum, which may announce some reforms.

Policy advisers predict that measures to redistribute income from central authorities to local governments, reducing their reliance on land sales, will be high on the agenda of the gathering. economist Wang Zhe at Caixin Insight Group recommends that fiscal and tax reforms should be implemented to boost market confidence.

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