A crucial part of the Chinese economy is starting to weaken

Photo by Maddie Meyer/Getty Images

Growth in China’s services sector, tasked with powering economic growth in the decades ahead, slowed to a crawl last month.

The Caixin-Markit services purchasing managers’ index (PMI) fell by 0.8 points to 51.2 in May, leaving the index at the equal lowest level seen since December 2015.

A PMI index measures changes in activity levels across an individual sector from one month to the next. A 50 reading indicates that activity levels are growing while a sub-50 figure indicates that activity levels are contracting.

The higher the number the better, in other words.

At 51.2, activity levels are growing at a moderate pace, and decelerating. Not an outcome that inspires confidence for the near-term economic outlook.

According to Markit, new orders rose at a slower pace than April with the rate of increase “modest and slower than the historical average”.

Despite the slowdown, employment grew for a second straight month although it “remained marginal overall”.

“Some companies mentioned that restructuring plans had acted as a brake on staff hiring,” noted Markit.

There was also mixed news on the inflation front with input costs rising at a slower pace, and below the survey average, while output costs increased at the same pace as April.

Suggesting that activity levels may decelerate even further in the months ahead, sentiment towards the 12-month business outlook fell to the lowest level seen this year.

“A number of companies forecast that improving client demand and planned company expansions will support higher business activity over the next year, but there were reports that an uncertain economic outlook weighed on the overall level of business confidence,” noted Markit.

The decline in the Caixin-Markit index mirrors that seen in the official services PMI report released by China’s National Bureau of Statistics earlier this week.

That NBS PMI slid 0.4 points to 53.5 in May, although it still remains well above the level indicated by the Caixin-Markit survey.

Helping to explain the variance, the NBS survey is larger than that conducted by Markit, capturing responses from firms of all sizes from both the public and private sectors.

The Markit survey looks at activity levels at smaller Chinese services firms, and only those from the private sector.

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