Services PMI hits healthy level on consumption

Services and consumption in China are gaining momentum at a quickening pace on the back of holiday spending this spring, with an overall accelerated expansion of production and business activity also witnessed in the market, a private survey showed on Monday.

Experts suggest that further policy efforts should focus on keeping employment stable, increasing incomes and boosting market expectations.

The Caixin China General Services Purchasing Managers' Index rose to 57.1 in May from 56.4 in April, higher than the 54.5 official figure and marking the second fastest expansion since December 2020, media group Caixin said on Monday. The 50-point mark separates expansion from contraction in activity.

Specifically, the survey showed that many businesses reported rises since May, as the May Day holiday helped unleash pent-up consumption orders for hotels, restaurants and travel.

The survey showed that thanks to supply and demand improvements in the services sector, businesses in the industry are showing relatively strong confidence. Surveyed businesses mainly assume that a robust post-COVID recovery, increased demand from clients and companies' expansion plans will all underpin expansion of the sector.

The Monday survey results also show that, driven by improved business conditions in major sectors, the Caixin Composite PMI for May rose by 2.0 percentage points to 55.6, reaching a level not seen since 2021.

This indicates an accelerated expansion of production and business activity in Chinese enterprises, the survey said.

Wang Zhe, senior economist at Caixin Insight Group, said that the services sector outperforming the manufacturing sector remains a prominent feature of the current economic recovery.

"The Caixin Services PMI for May indicates an overall improvement in services, despite signs of weakness in employment and market expectations. Yet for the manufacturing PMI, employment conditions deteriorated and price levels declined notably. This suggests that internal driving forces for growth remain insufficient, and market confidence is still yet to be improved. There is also a strong urgency to restore demand. Currently, considering the pressure on the employment front and on deflation, further policy should be prioritized to stabilize employment, increase incomes and anchor market expectations," Wang said.

Robin Xing, chief China economist at Morgan Stanley, said he expects more stimulus measures to safeguard economic recovery in the second half, such as relaxations on home purchase restrictions in first- and second-tier cities, and more targeted consumer incentives to energize consumption.