China's service sector rises to 7-mth high, but overseas orders decline

China’s services sector witnessed significant growth in the last seven months, with the Purchasing Managers’ Index (PMI) rising to 52.2 in December from 51.5 in the previous month.

 

However, orders from abroad have declined, reflecting further trade challenges in an ongoing tough situation for the world's second-largest economy.

 

According to Caixin and S&P Global, the growth pace was the fastest since May 2024, driven by the surge in domestic demand. 

 

The findings largely align with China's official PMI released last week, which showed non-manufacturing activity rebounding to 52.2 in December, up from 50.0 in November.

 

“Since late September, the synergy of existing policies and additional stimulus measures has continued to act on the market, producing more positive factors,” Wang Zhe, senior economist at Caixin Insight Group told Reuters. 

 

Business inflows are lowest since August 2023

 

The survey showed that the newly introduced business sub-index rose to 52.7 in December, from 51.8 reported in November. However, the new business inflows from abroad declined for the first time since August 2023, despite this growth.

 

Companies decreased their workforce for the first time in four months, while some attributed the decision to cost pressures, including the rising price of input materials and wages.

 

Wang said that significant downward pressures remain, citing weak domestic demand and increasing external challenges. “The external environment is likely to grow more complex this year, necessitating early policy planning and swift responses,” he said.

 

Business confidence remained positive, but fell to its second-lowest level since March 2020, with some firms voicing concerns about intensifying competition and potential disruptions in international trade.

 

Meanwhile, the Caixin/S&P Global Composite PMI, which tracks activity across both manufacturing and services, fell to 51.4 in December from 52.3 in November, indicating a slowdown in overall economic momentum.

 

China’s struggling economy and tariff threat

 

The economy of China has been facing serious challenges in the past few years with slow consumption, weak investment, and an intensifying real-estate crisis. Even the one strong sector of the economy, exports, may face threats from a new round of US tariffs in case of a second Trump administration.

 

US President-elect Donald Trump has threatened to impose tariffs exceeding 60 per cent on Chinese imports, posing a substantial threat to the world's second-largest economy.

 

In a bid to revive the slowing economy, the authorities have implemented a series of fiscal and monetary measures in recent months.