Services sector registers robust May

China's services activity expanded at a faster pace in May, according to the latest RatingDog China General Services Purchasing Managers' Index, which points to robust growth in new business and a rebound in overseas demand, despite uncertainties from geopolitical tensions in the Middle East.

Analysts said the upbeat figures of the private survey released on Wednesday — as well as a further pickup in business confidence — point to stronger momentum in China's services sector amid intensified policy efforts to "expand capacity and improve the quality of the sector".

Their remarks came as the reading, compiled by S&P Global, rose 1.8 percentage points to 54.4 in May from 52.6 in April, remaining above the 50-point mark that separates expansion from contraction and signaling the fastest pace of expansion in three months.

This was broadly in line with the official survey released by the National Bureau of Statistics on Sunday, which showed services activity returning to expansion at 50.3 in May from 49.6 in April. Compared with the official gauge, the RatingDog PMI tracks small, export-oriented companies more closely.

"The recovery in services activity indicates that earlier macroeconomic policy support has begun to take effect," said Lou Feipeng, a researcher at Postal Savings Bank of China. "Fiscal tools such as services consumption subsidies and interest subsidies for loans have helped cushion the sector and shore up business confidence."

Beating market expectations, the faster increase in activity was supported by improving new business, which expanded for the 41st consecutive month and at the fastest pace in three months, according to RatingDog.

Yao Yu, founder of RatingDog, said the strong performance was largely driven by improving domestic demand, continued business innovation and new client acquisitions.

Echoing Yao's view, Lou said the May Day holiday unleashed strong demand for travel, dining, cultural and leisure activities, helping spur the business climate in related consumer sectors.

External demand also regained momentum. RatingDog showed that new export business returned to expansion in May after mild contractions in the previous two months, lending further support to the sector's growth momentum.

Meanwhile, emerging growth drivers, represented by information services, have shown strong momentum and sound sustainability, said Wu Wei, an analyst at the China Logistics Information Center.

"Through continuous innovation and deeper integration with other sectors, the information services sector will continue to play a key role in fostering new quality productive forces, with broader development prospects ahead," Wu said.

The improvement also fed through to business confidence. RatingDog said business optimism across the services sector picked up in May, with the confidence reading reaching its highest level since February.

Yao said improved sentiment — together with stable domestic demand — is expected to help keep both the services PMI and the broader composite PMI in expansionary territory in the months ahead.

Policy support has also strengthened expectations for the sector's long-term growth. In April, the State Council issued a new set of guidelines aimed at expanding capacity and upgrading the quality of the services sector, setting a goal for the sector's total scale to reach 100 trillion yuan ($14.8 trillion) by 2030.

However, analysts cautioned that the services recovery may not yet be on firm footing, noting that rising cost pressures may warrant closer attention in the coming months. They said more targeted policy measures will be crucial to helping the economy withstand external headwinds.

"Authorities should step up loan interest subsidies and credit enhancement support for small and medium-sized service providers to help ease operating pressure from rising input costs," Lou said.

He added that stronger support should also be directed toward producer services such as technology services, software and information services, and modern logistics, so that productivity gains can help absorb rising cost pressures.