BEIJING (Reuters) - China’s services sector expanded at the weakest pace in four months in July, as there was the least growth in new business since December 2015, a private survey showed on Friday.
Forward-looking sentiment meanwhile was the second-weakest on record, with respondents blaming concerns surrounding company restructuring and the impact of the U.S.-China trade war.
For July, the Caixin/Markit services purchasing managers’ index (PMI) fell to 52.8, the lowest since March, from June’s 53.9. The 50-mark separates growth from contraction.
The findings were largely in line with those of an official gauge of the non-manufacturing sector released on Tuesday, which showed the services PMI falling in July.
China is banking on a stronger services sector to offset a smaller contribution from heavy industry and fixed asset investment as policymakers extend a multi-year campaign to crack down on risks, and look to emphasize more sustainable economic growth.
A solid services sector is also important for generating jobs as factories become more automated and the government aims to eliminate industrial overcapacity, which puts some employees out of work.
The services sector already accounts for more than half of China’s economy, with rising wages giving its consumers more spending power at home and abroad.
But July’s weak new business growth was “a clear sign that demand for services had worsened”, said Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group, in a statement accompanying the survey.
The new business sub-index fell to 51.4 in July from 52.7 in June.
With weaker demand growth, prices charged also rose at a slower rate, while input price increases only declined slightly.
Caixin’s composite PMI covering both the manufacturing and services sectors also declined in July, coming in at 52.3 compared with the previous month’s 53.0 and matching May’s reading.
The composite reading showed companies shed workers at the fastest pace since March amid rising cost pressures.
The outlook for future business was the weakest since November 2015, though recent moves by Beijing to support economic growth should help, said CEBM’s Zhong.
“The sub-index of expectations regarding future output (implied) that confidence of companies, particularly service providers, could use a boost,” said Zhong.
“In July, the State Council, China’s cabinet, said the country will adopt a more proactive policy to support the economy in response to uncertainty abroad. The risk of an economic downturn has diminished.”
Reporting by Elias Glenn; Editing by Richard Borsuk; Contact info: Elias.Glenn@thomsonreuters.com; +86 6627 1221; Reuters Messaging: firstname.lastname@example.org