China’s service economy expansion surged in May with greater new business inflows supporting faster service activity growth. New export business also increased at the fastest pace in a year, which led service providers to expand their staffing levels and support the clearance of their backlogged orders. However, China’s price pressures rose, which led to an increase in firms’ charges in light of rising cost burdens. In addition, business confidence across China eased to a 7-month low due to global economic concerns and rising prices.
The seasonally adjusted headline S&P Global Caixin China General Services Business Activity Index rose to 54.0 in May from 52.5 in April. This marked an expansion in activity for the 17th month in a row and at the fastest pace since July 2023.
New business inflows support growth
Faster new business inflows across China’s service economy supported its latest surge in service activity growth. Hence, the country saw an increase in incoming new work at the fastest pace since May 2023. Meanwhile, export business expanded at the fastest pace so far this year. This led to an increase in staffing levels, which rose for the first time in four months. In addition, the rate of employment growth expanded at the fastest pace since September 2023.
“Business activity and total new orders both grew for the 17th month in a row, increasing at the fastest pace since July and May last year, respectively,” stated Dr. Wang Zhe, senior economist at Caixin Insight Group.
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Inflation persists
China’s average input costs increased in May, extending the rising inflation trend to just below four years. China’s rate of inflation in May rose to the fastest in 11 months with costs of input materials, labor, and transport being some of the main reasons for the increase in input prices across the country’s service economy. With the rise in input cost inflation, service providers in China opted to share the cost burden with clients, which resulted in the fastest increase in average prices charged since January 2022.
“Employment expanded following three months of contraction. Continued inflows of new orders prompted service providers to increase their workforce, bringing the corresponding indicator to its highest reading since last September,” added Dr. Wang.
Despite the increase in inflation and input costs, sentiment remained positive in China’s service economy in May. However, confidence levels fell to a seven-month low due to rising concerns over the global economic outlook and inflation.
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