June 5, 2018 / 3:57 AM / 18 days ago

China services sector expands at steady clip in May but new orders wobble-Caixin PMI

China’s services sector expanded at a steady, solid pace in May, with companies accelerating hiring on the back of the strongest optimism for future growth in 11 months, a private survey showed on Tuesday.

A customer shops inside a store selling imported goods in Qingdao, Shandong province, China, June 1, 2018. Picture taken June 1, 2018. REUTERS/Stringer

However, companies reported slower growth in new orders and weaker pricing power pointed to intense competition even as input costs rose at a faster pace.

The Caixin/Markit services purchasing managers’ index (PMI) was unchanged in May from April at 52.9, indicating steady expansion though at a slightly slower pace than earlier in the year. The 50-mark separates growth from contraction.

The findings were roughly in line with those of an official gauge of the non-manufacturing sector released last week, which showed the services PMI rising slightly in May.

China is banking on a stronger services sector to offset a smaller contribution from heavy industry and fixed asset investment as policymakers look to emphasize more sustainable economic growth.

A solid services sector is also important for generating new jobs as factories become more automated and the government looks to remove industrial overcapacity, putting redundant employees out of work.

The services sector already accounts for more than half of China’s economy, with rising wages giving its consumers more spending power at home and abroad.

The new business sub-index in Tuesday’s PMI fell to 52.5 in May from 53.0 in April, though companies hired at the fastest pace since January.

Input prices rose at a slightly faster pace, with companies saying the higher costs were driven by higher wages and transportation-related costs.

But prices charged increased at a slower pace, the survey showed, with companies citing tough competition.

Caixin’s composite PMI covering both the manufacturing and services sectors also remained steady in May at 52.3, suggesting economic growth remains relatively resilient despite worries about rising borrowing costs, cooling investment and trade tensions with the United States.

“The index of expectations regarding future output rose to a relatively high level, suggesting optimism across both the manufacturing and service sectors,” said Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group, in a statement along with the data.

“However, the impact of the recent credit contraction on small businesses is worthy of attention.”

Beijing is in the third year of a crackdown on riskier types of financing, which is making it more difficult and more expensive for some private firms to access funding.

Reporting by Elias Glenn; Editing by Kim Coghill

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