In a noteworthy development, China's services sector experienced its fastest expansion in five months, fueled by a substantial increase in new business, according to a private-sector survey released on Thursday. The Caixin/S&P Global services purchasing managers' index (PMI) climbed to 52.9 in December, surpassing November's 51.5 and reaching its highest level since July. This positive data has elevated optimism within the sector to a three-month high.
Contrary to an official survey earlier, which indicated a contraction in the services activity at the end of 2023, the Caixin PMI offers a contrasting view, suggesting an upswing in business sentiment. The expansion is attributed to a robust rise in new business, marking the fastest rate since May. Companies pointed to increased customer numbers and spending as key drivers for the improved performance.
Foreign demand for Chinese services also saw a boost in December, with around 214,000 travelers from several European countries and Malaysia entering China, reflecting a 28.5% increase from November.
Firms responded to improved demand conditions by increasing their staffing levels, with the employment sub-index returning to expansion in December after contracting in November. Despite a positive outlook for business activity in 2024, sentiment levels, while at a three-month high, remained below the series average.
The combined data from the Caixin manufacturing PMI and the services PMI resulted in the Caixin/S&P's composite PMI rising to 52.6 last month, the highest reading since May.
However, a contrasting official PMI survey indicates ongoing economic challenges for the world's second-largest economy. The property sector's struggles, cautious consumer spending, and factory price cuts are factors contributing to the divergence between the Caixin PMI and the official PMI.
To stimulate growth, 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. This move has increased speculation that further interest rate cuts might be on the horizon.
While the services sector shows resilience and optimism, the National Bureau of Statistics (NBS) will release additional economic indicators, including industrial output and retail sales, in the coming weeks. The comprehensive assessment of these factors will provide a clearer picture of China's economic trajectory.