China April services sector expands further on strong export sales: Caixin PMI

BEIJING, (Reuters) - - Activity in China’s services sector further improved in April, with export sales rising at a record pace, a private business survey showed on Monday, although the longer-term outlook for new orders stayed subdued due to global economic uncertainties.

FILE PHOTO: An electric delivery vehicle of Deppon Logistics drives past a banner with a government slogan in Beijing, November 6, 2018. REUTERS/Thomas Peter/File Photo

The Caixin/Markit services purchasing managers’ index (PMI) climbed to 54.5, the highest since January 2018 and slightly up from 54.4 in March. The 50-mark separates growth from contraction.

Export orders increased the most since the survey began measuring this in September 2014.

While the growth contrasts with a slight slowdown suggested by official data last week, both readings indicated China’s services sector remained firmly in expansionary territory.

The strength in services, which account for more than half of China’s economy, would help to counter any volatility in the country’s manufacturing sector, which is still searching for firm footing.

Caixin’s composite manufacturing and services PMI slipped to 52.7 in April from 52.9 a month earlier, weighed down by the slowing expansion of factory activity.

Costs remained a concern for both services and industries. Price data shows rising input costs in the services sector due to higher staffing costs and price hikes for raw materials, the Caixin survey showed.

“In general, China’s economy looked resilient in April, especially in the services sector,” Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group, said in a commentary released alongside the Caixin data.

“However, pressure on costs across the services sector remained relatively high, limiting companies’ profit growth potential. Business confidence hasn’t recovered.”

Outstanding business in the services sector contracted for the fourth straight month in April, although only marginally, according to the Caixin survey.

Job creation in the sector rose the most in 10 months, but a sub-gauge measuring the outlook for the year ahead remained subdued, capped by concerns over the strength of the global economy.

To provide ballast for the economy, Beijing has ramped up fiscal stimulus this year, unveiling tax and fee cuts amounting to 2 trillion yuan ($297 billion) to ease burdens on firms, while allowing local governments to issue 2.15 trillion yuan of special bonds to fund infrastructure projects.

Analysts have said it would take time for those measures to fully kick in, with most not expecting the economy to convincingly stabilize until around mid-year.

Signs that China and the United States could reach a trade deal in coming weeks following a year of tit-for-tat tariffs would also offer reprieve for Chinese exporters.

($1 = 6.7337 Chinese yuan)

Reporting by Ryan Woo; Editing by Richard Borsuk