In a remarkable turnaround, China's service sector experienced its fastest growth in five months, indicating a robust rise in new business and injecting a renewed sense of optimism into the industry, according to the latest Caixin/S&P Global services purchasing managers' index (PMI) released on Thursday.
Contrary to an official survey that suggested a contraction in services activity at the end of 2023, the Caixin PMI painted a more positive picture, reporting a surge from November's 51.5 to December's impressive 52.9. This exceeded expectations and marked the highest reading since July, emphasizing the resilience and adaptability of China's service industry.
The growth was fueled by a substantial increase in new business, expanding at the fastest rate since May. Businesses attributed the improvement to a rise in customer numbers and spending, hinting at a positive shift in consumer sentiment. Even though a restaurant owner named Jin acknowledged a slight improvement in December compared to November, he noted that 2023 was challenging due to broader macroeconomic trends.
Interestingly, foreign demand for Chinese services also saw a noteworthy uptick, with approximately 214,000 travelers from key European countries and Malaysia entering China in December. This surge, attributed to the newly implemented visa-free policy, marked a 28.5% increase from November, indicating a positive trend in global engagement with China's services.
Firms, responding to improved demand conditions, increased staffing levels to meet rising business requirements. The employment sub-index rebounded in December, signaling a positive shift in the job market after a contraction in November.
Despite challenges faced by the once-mighty property sector and consumer belt-tightening, the positive momentum extended into the new year. Travel data during the New Year's holiday revealed an improvement in the number of domestic visitors, underscoring the sector's resilience.
This positive trend aligns with the better-than-expected Caixin manufacturing PMI, resulting in a composite PMI of 52.6 for December, the highest since May. While the National Bureau of Statistics (NBS) reported a more subdued outlook, analysts attribute the divergence to differences in geographic and sector coverage between the Caixin and official PMI surveys.
In response to potential economic headwinds, China's central bank injected 350-billion-yuan ($49.01 billion) in loans to policy banks through its pledged supplementary lending (PSL) facility in December. Market analysts are now speculating on further interest rate cuts to stimulate growth in the coming months.
As the NBS prepares to release additional economic indicators, including industrial output and retail sales, in the coming weeks, global markets will be closely monitoring China's economic trajectory for potential implications on the international trade landscape.