Growth in China's services sector eases in May on slower export sales: Caixin PMI

BEIJING (Reuters) - China’s services activity grew at the slowest pace in three months in May, hit by a marked cooling in export sales, a private survey showed on Wednesday, as escalating Sino-U.S. trade tensions weighed on a key industry Beijing is counting on to support a stuttering economy.

FILE PHOTO: A worker cleans a broken glass panel at a mall in Beijing, China October 4, 2015. REUTERS/Damir Sagolj

The Caixin/Markit services purchasing managers’ index (PMI) fell to 52.7 in May, the lowest since February and down from April’s 54.5. The 50-mark separates growth from contraction.

New export orders placed with Chinese services firms pulled back significantly from April’s multi-year high of 55.6 to 51.1, with a vast majority of companies surveyed reporting no change to export sales in May, the survey showed.

That knocked total new orders growth to a 3-month low.

“Overall, China’s economic growth showed some signs of slowing in May. Employment and business confidence in particular merit policymakers’ attention,” said Zhengsheng Zhong, Director of macroeconomic analysis at CEBM Group, in a statement accompanying the data release.

The broad survey results and a run of recent data from China suggest Beijing might need to roll out more stimulus to stave off a sharper economic deceleration.

While an official gauge released last week was more upbeat on the services sector, both surveys indicated the industry is facing slackening global demand. New export orders in the official survey showed the steepest contraction since October last year.

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China has been banking on the services sector to cushion the slowdown in manufacturing, which is being hit by rising labor costs and the year-long U.S.-China trade war. However, with sentiment deteriorating amid a broad-based economic slowdown, consumers are tightening their belts on everything from clothes, cosmetics and cars.

Trade tensions between Washington and Beijing escalated sharply earlier last month after the Trump administration accused China of having “reneged” on its previous promises to make structural changes to its economic practices.

The U.S. then put Chinese telecom equipment Huawei Technologies Co Ltd on a trade blacklist, prompting retaliation from Beijing to target foreign companies that have harmed Chinese firms’ interests.

With the standoff widening beyond trade, financial markets took a hit on fears of a global recession.

That anxiety was underscored in Wednesday’s private survey, which showed confidence for the year ahead among Chinese service providers fell to the weakest since July 2018, with some respondents citing concerns over subdued economic conditions.

Job creation in the services sector also eased off to grow at only a marginal pace, with the index for employment pulling back to 50.4 last month from 51.4 in April.

Caixin’s composite manufacturing and services PMI, also released on Wednesday, slipped to 51.5 in May from 52.7 in April.

Analysts say the PMI signals bad news for global growth.

“The continued escalation in trade tensions and broad-based fall in manufacturing PMIs suggest that the downside risks to growth are becoming more prominent,” said Morgan Stanley analysts in a note to clients this week.

Reporting by Stella Qiu and Ryan Woo; Editing by Shri Navaratnam