China's all-important services sector is slowing down

GOH CHAI HIN / AFP / Getty Images

China’s services sector, now the largest part of the economy, is slowing.

The latest Caxin-Markit services purchasing managers’ index (PMI) fell by one point to 51.7 in July, indicating that growth in the sector slowed modestly compared to levels seen in June.

The survey measures changes in activity levels from one month to the next. Anything above 50 signals growth, while anything below that level means contraction -— so the higher the number the better.

According to Markit, all of the PMI’s subindices showed signs of deterioration in July, with employment falling back into the territory of contraction after three consecutive months of growth.

Despite the slowdown witnessed in July, Markit suggested that firms “maintained a positive stance towards future business activity with the degree of optimism edging up to a three month high”.

“Service providers that anticipate growth of activity generally cited forecasts of improving economic conditions and an expanding market size,” it said.

The slowdown recorded in the Caixin-Markit survey is at odds with the official non-manufacturing PMI report, released by the Chinese government, which revealed activity levels accelerated sharply over the same period.

It rose to 53.9 from 53.7 in June, leaving it at the highest level seen since December last year.

Perhaps explaining the divergence, the Caixin-Markit survey is smaller in scale than the official PMI report.

It is also focused on small and medium-sized firms from China’s private sector, unlike the official survey which captures responses from firms of all sizes from both the public and private sectors.

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