Chinese service sector growth slows: Caixin PMI

December business confidence fell to second-lowest point on record

                                

Growth in the Chinese service sector slowed in December with business confidence falling to its second lowest point on record. The deceleration came despite an uptick in new orders and strong growth in November.

As the service sector accounts for 50 per cent of the Chinese economy, the Caixin/Markit services purchasing managers’ index (PMI) is one of the country’s most closely monitored indices.

The Caixin/Markit PMI fell in December by 1 point from 53.5 in November to 52.5. While this is still above the 8-month low reached in October, concerns are still mounting that China’s heretofore strong services sector could be weakening.

With the 18-month long trade war with the United States hampering the growth of China’s manufacturing sector and reducing foreign investment into the country, the emerging superpower has increasingly relied on the service sector to drive its economy.

With a series of tariffs set to be lifted after both countries sign an initial "phase one" trade deal at the White House later this month, China will hope its manufacturing sector can regain lost momentum.

However, according to the latest Caixin PMI survey, the Chinese service sector is facing more long-term hurdles to rapid future growth. China’s population is expected to peak in 2031, with the ratio of workers to senior citizens expected to fall from 6:1 to 2:1 by 2039.

This slow burning demographic crisis has already begun to affect the services sector with companies surveyed voicing their concerns over a lack of suitable staff. The employment sub-index fell to its lowest level in six months.

While a detente between China and the US will improve confidence and activity in the short-term, the Chinese services sector faces many more long-term threats to further growth.

FURTHER READING: US and China reach phase one of trade deal

FURTHER READING: China lifts tariffs on six US chemical products

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