Caixin China Composite PMI™ data (which covers both manufacturing and services) signalled increased total business activity across China at the end of the second quarter. That said, the Composite Output Index posted 50.3 in June, down from 50.5 in May, to signal a fractional rate of growth that was the weakest in four months.
Latest data signalled a further slowdown in overall Chinese business activity, with the rate of expansion slowing to the weakest in the current four-month sequence. There were differing trends at the sector level, however, with services companies reporting a stronger expansion of business activity in June, while manufacturing output declined at the sharpest pace since February. Notably, it was the quickest increase in services activity in 11 months, with the Caixin China General Services Business Activity Index posting 52.7, up from 51.2 in May.
According to anecdotal evidence, services activity growth rebounded due to increased amounts of new work. This was highlighted by a further rise in total new business, with the latest increase the fastest since July 2015. Some companies commented that new projects and firmer client demand had boosted sales in the latest survey period. Meanwhile, in the manufacturing sector, new work contracted for the second month running, albeit at a marginal pace. As a result, composite new orders rose only slightly during June.
Chinese service providers continued to adopt a cautious approach towards staff hiring, raising their workforce numbers only slightly for the third month in a row. In contrast, employment across China’s manufacturing sector continued to decline markedly at the end of the second quarter. Consequently, employment at the composite level fell for the thirteenth successive month and at a modest rate.
Unfinished work at Chinese services companies declined for the first time in three months in June, albeit at a marginal rate. Some companies reported increased efforts to clear backlogs due to greater amounts of incoming new work. The level of work-in-hand (but not yet completed) at manufacturing companies meanwhile rose modestly. At the composite level, outstanding business rose slightly for the fourth consecutive month.
Sustained cost inflation was seen across China’s service sector in June, with the rate of input price inflation picking up to a four-month high. That said, the rate of increase remained moderate overall and slower than the series average. At the same time, goods producers saw a renewed fall in average cost burdens. As a result, average input prices increased only slightly at the composite level.
Services companies raised their selling prices for the third month running in June. However, the rate of charge inflation was similar to those seen in the prior two months and only marginal. In contrast, manufacturing output prices were broadly unchanged from the previous month. This resulted in only a marginal rise in composite output charges during June.
June signalled further optimism across China’s service sector towards the 12-month business outlook, though the degree of optimism was unchanged from May’s five-month low. Anecdotal evidence suggested that increased competitive pressures had been a key factor weighing on overall business confidence.
Service sector growth is now supporting the overall economy, and the expansion for services is coming at a time when the manufacturing index is contracting, suggesting the nation’s economic structure is becoming more balanced. The government must continue to relax service sector controls to encourage its development and push forward the nation’s economic transformation.
