China: July services activity expands at quickest pace in 15 months

China's services activity grew at the fastest rate in 15 months in July as easing COVID curbs boosted consumer confidence, but foreign demand fell and companies cut staff for the seventh month in a row, a private-sector survey showed on Wednesday.
 

The Caixin services purchasing managers' index (PM) rose to 55.5 in July, the fastest growth since April 2021, rising further from the robust reading of 54.5 in June.

The 50-point mark separates growth from contraction on a monthly basis.

The reading contrasted somewhat with China's official services PMI on Sunday which showed growth moderated, but both gauges still pointed to solid expansion in the hard-hit sector while the country's manufacturers struggled.

A sub-index for new business soared to nine-month high, thanks to improved domestic demand, but new export business contracted for the seventh successive month, the Caixin survey showed.

Meanwhile, the rate of cost inflation in the services sector picked up for the first time since March as prices for food, fuel, raw materials and staff remained high.

But some market watchers are not sure how long the COVID reopening boost will last.

Fresh virus flareups have led to tightening curbs on activity in some cities in recent weeks, while the property market is in a deepening slump and global demand is faltering.

Many businesses have put big spending plans on hold and are trying to cut costs.

"Beware the July rebound narrative. Markets are convinced that easing lockdowns mean the worst is over, but July data show that firms are still largely refusing to invest, borrow and especially now, hire," said Leland Miller, chief executive at data firm China Beige Book.

"This is likely because companies simply do not believe that their COVID Zero nightmare is over."

Caixin's July composite PMI, which includes both manufacturing and services activity, fell to 54.0 from 55.3 the month prior. The Caixin PMI is compiled by S&P Global from responses to questionnaires sent to purchasing managers in China.

The country's top leaders last week signalled their preparedness to miss the government growth target of around 5.5 per cent for 2022. Analysts polled by Reuters have forecast growth to slow to 4.0 per cent this year.

(Reporting by Ellen Zhang and Ryan Woo; Editing by Kim Coghill)