According to a private sector survey, despite being the peak summer travel season, the expansion of services in China in August fell below expectations, with some companies even laying off employees due to concerns about rising costs, intensifying competition within the industry. The latest data indicates that the Chinese economy continues to show signs of further slowdown.
On Wednesday, September 4, Caixin and S&P Global jointly released the August Caixin China Services Purchasing Managers’ Index (PMI). The survey revealed that the Caixin Services PMI for August dropped to 51.6, a decrease of 0.5 percentage points from July, marking the lowest level so far this year and lower than the economists’ initial estimate of 51.8.
Although the data is above the 50 mark that separates expansion from contraction, the growth rate has slowed down, indicating a risk of economic stagnation in China.
The service industry is a core part of many of the Chinese Communist Party’s economic measures, aimed at revitalizing consumer demand affected by the real estate crisis. However, so far, most policies have not shown significant effects.
The survey also indicated that while new business grew, it did not translate into more job opportunities. Employment numbers in August declined after a rise in July. Experts suggest that the decrease in employment is due to companies needing to cut costs, leading to resignations and layoffs.
In a statement, Wang Zhe, a senior economist at Caixin Insight Group, stated, “Employment in the service industry has shifted from expansion to contraction. This indicator has fallen into contraction territory for the fifth time in the past seven months. Interviewed companies are adopting cautious hiring strategies to save costs, putting pressure on the labor market.”
Previously, Caixin released the August manufacturing PMI for China, which rose by 0.6 percentage points to 50.4, back above the expansion threshold. However, with the services and manufacturing PMI showing mixed trends, the composite Caixin PMI for August remained at 51.2, the lowest in nearly 10 months.
Data released by the National Bureau of Statistics of China last weekend showed that the manufacturing PMI for August dropped by 0.3 percentage points to 49.1, matching the lowest level so far this year also seen in February. The business activity index for the service industry rose by 0.2 percentage points to 50.2, while the comprehensive PMI fell by 0.1 percentage points to 50.1, hitting a new low since 2023.
It is worth noting that competition within the service industry is intensifying. The survey revealed that average input prices for companies continued to rise, with the inflation rate accelerating to its highest point since June 2023.
In contrast, selling prices decreased for the first time in seven months, with the largest decline since April 2022. Industry interviews indicated that intensified competition led companies to lower prices and offer discounts to boost sales.
Wang Zhe noted, “Competition within the industry remains intense, with the primary task for companies being to boost sales through price discounts.”
The latest data has heightened concerns about the health of the Chinese economy. Currently, factories are reducing prices to maintain competitiveness, consumers are holding onto their wallets, the real estate industry remains sluggish, and there has been no significant rebound. Additionally, China is facing external geopolitical uncertainties.
Confidence in the world’s second-largest economy is steadily weakening, with investment banks and economic experts lowering their forecasts for China’s economic growth.
In a report on Tuesday, analysts from Citigroup pointed out that the Chinese economy in August was hit by the dual impact of weather disruptions and weak demand.
Citigroup believes that the Chinese authorities may find it challenging to achieve their economic growth target of around “5%” in 2024.
On Wednesday, Bank of America lowered its economic growth forecast from 5% to 4.8%, while Canadian investment bank TD Securities revised its forecast from 5.1% to 4.7%.
Earlier, UBS had already cut its forecast last week, and there were a series of bank downgrades in the summer.
Several dozen economists surveyed by Bloomberg have lowered their median forecast for China’s full-year Gross Domestic Product (GDP) growth from 4.9% in mid-August to 4.8%.