China’s services economy expanded at an accelerated rate at the start of the final quarter of 2024. Growth in new business reflected another solid rise in export orders in October, which led to a quicker rise in business activity while the level of backlogged work also increased. As a result of improving conditions in the services sector, service providers in China continued to raise staffing levels in October. On the price front, selling prices remained steady while input cost inflation softened.
The seasonally adjusted headline S&P Global Caixin China General Services Business Activity Index posted 52.0 in October, up from 50.3 in September, extending the period of expansion that commenced in January 2023. While modest, the rate of growth was the fastest in three months, with some analysts attributing the improvement in conditions to the stimulus measures.
“The sector has continued to expand since the beginning of last year, with a slight acceleration in pace from September,” stated Dr. Wang Zhe, senior economist at Caixin Insight Group.
New business inflows grow
Improvements in underlying demand and market conditions across China’s services economy underpinned growth in new business inflows in October. The rate of expansion rose for the first time in four months but remained modest overall. Growth in new work was also supported by another solid increase in export business. Panelists attributed this growth to successive business development efforts and rising interests from foreign markets such as the U.S.
“Supply and demand continued to grow as the market improved. Business activity and total new orders increased for the 22nd month in a row, both edging up by more than one point compared to September. Overseas demand grew for the 14th straight month, with surveyed companies citing improved external conditions,” added Zhe.
Input prices continue rising
Average input prices continued to increase for China’s services firms in October amid reports of rising input material and energy costs. The rate of inflation fell below the series average, however, dropping to a three-month low. Meanwhile, selling prices stabilized after falling for two successive months. While some firms opted to pass on higher costs to clients, others lowered prices amid rising competition.
“Rising prices for energy and raw materials partly offset lower salary costs at some of the surveyed companies. Output prices were largely unchanged. Price increases at some businesses were balanced out by cheaper offerings from others as the market remained competitive,” added Zhe.
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Future outlook positive
Finally, sentiment across China’s services sector remained positive at the start of the final quarter of 2024. Moreover, the level of confidence rose from September’s low to the highest since May. Anecdotal evidence suggested that firms were hopeful that a better economic climate and increased promotional efforts could help to support sales growth in the year ahead.
“Market optimism improved. The gauge for future activity expectations rebounded by nearly three points to reach a five-month high. Businesses expressed confidence in macroeconomic conditions in the near term,” Zhe concluded.
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