China services activity expands in July at fastest pace in 15 months

The service activity of China grew at the fastest pace in 15 months in July as the easing of COVID restrictions boosted consumer confidence, but foreign demand fell and businesses cut staff for the seventh straight month, a private-sector survey showed.

Caixin’s Services Purchasing Managers’ Index rose to 55.5 in July, the fastest growth since April 2021, rising further from a strong 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 released on Sunday, which showed moderate growth, but both indicators still pointed to a solid expansion in the hardest-hit sector as the country’s manufacturers struggled.

A new business sub-index soared to a nine-month high, thanks to improving domestic demand, but new export business contracted for the seventh straight 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 personnel remained high.

But some market watchers aren’t sure how long the boost due to the COVID reopening will last.

New virus outbreaks have led to tighter restrictions on activity in some cities in recent weeks, while the property market is in a deepening depression and global demand is reeling. Many companies have suspended large spending plans and are trying to cut costs.

Caixin’s July Composite PMI, which includes both manufacturing and services activity, fell to 54 from 55.3 the previous month. The Caixin PMI is compiled by S&P Global from responses to questionnaires sent to purchasing managers in China.

The country’s top leaders signaled last week that they were prepared not to hit the government’s growth target of around 5.5% by 2022. Analysts polled by Reuters have forecast growth will slow to 4% this year.