According to the Caixin Services Purchasing Managers’ Index (PMI) for June, the figure dropped significantly by 2.8 percentage points to 51.2 compared to May, hitting the lowest level since November last year, indicating a noticeable weakening of market confidence. This slowdown may intensify concerns about China’s economic outlook.
On Wednesday, a survey released by Caixin and S&P Global revealed that the Caixin Services PMI for June stood at 51.2, lower than the expectations of Bloomberg economists. Sub-index data showed a slowdown across the board, with the new orders index falling to its lowest level in nearly 4 months within the expansion zone. The decline in external demand was smaller than the overall demand, with the new export orders index slightly decreasing from its peak in the previous month.
The deceleration in the growth of the service industry could exacerbate worries about China’s economic prospects. Despite increased policy support from the Chinese government, the real estate market in China continues to contract. Moreover, due to persistently low business and consumer confidence, deflationary pressures remain unresolved.
Wang Zhe, a senior economist at Caixin Insight Group, stated in the report, “Business activities and the total amount of new orders… both saw a slowdown. The former reached its lowest level in 8 months, while the latter hit a new low in 4 months.”
“The employment situation in the service industry has worsened again. Service providers still show a strong motivation to reduce wages and improve efficiency, unwilling to fill vacant positions. Employment numbers have shrunk for the fourth time in five months.”
The decrease in employment has led to businesses being unable to cope with the influx of new orders, as the index of backlogs of work in the service industry exceeded the boom-bust line for the first time in nearly five months.
Wang Zhe pointed out that market confidence is “significantly lower than the historical average level, hitting the lowest point since March 2020. The market is concerned about downward pressure on the economy.”
Caixin’s readings were slightly stronger than the official data released over the weekend. Bloomberg noted that one reason for the discrepancy is that the private survey focuses on smaller enterprises. Official data from the Chinese government also indicated that the expansion speed of China’s service industry in June fell to its lowest level in five months.
The Caixin China Manufacturing PMI for June, released by Caixin and S&P Global on Monday, increased by 0.1 percentage points to 51.8, deviating from the contraction indicated by official data. However, due to concerns about competition and economic prospects, manufacturers’ expectations for future output fell to the lowest level since the end of 2019, indicating weakened optimism among both manufacturing and service industry enterprises.
Due to the drag from the slowdown in service industry growth outweighing the acceleration in manufacturing expansion, the composite Caixin PMI for June declined by 1.3 percentage points to 52.8.
“Market confidence and insufficient effective demand remain the main challenges,” Wang Zhe emphasized.