China’s December Services Sector Shows Robust Growth, Contrary to Official Data

China’s services sector experienced notable expansion in December, marking its fastest pace in five months, according to a recent private-sector survey. The Caixin/S&P Global services Purchasing Managers’ Index (PMI) revealed a reading of 52.9, surpassing November’s 51.5. The index, which distinguishes growth from contraction with the 50-mark threshold, signaled increased optimism in the sector, reaching a three-month high.

This optimistic outlook contrasts with an official survey released on Sunday, which indicated a contraction in the services activity sub-index at the close of 2023. The divergence in data has prompted discussions about the need for additional stimulus measures in the new year.

Key highlights from the Caixin/S&P Global services PMI include:

Solid Rise in New Business: Aided by robust new business activities, the index’s improvement was attributed to an upswing in customer numbers and spending. Firms experienced the fastest rate of new business expansion since May.

Foreign Demand Increase: China saw increased foreign demand for its services in December. Approximately 214,000 travelers from various countries entered China, reflecting a 28.5% increase from November, according to the National Immigration Administration.

Employment Expansion: Improved demand conditions led to an expansion in staffing levels, with the employment sub-index returning to growth in December after a contraction in November.

Positive Business Sentiment: Despite challenges in 2023 attributed to macroeconomic trends, services firms maintained positive sentiment regarding their business activity in 2024. While optimism reached a three-month high, it remained below the series average.

The combined data from the Caixin manufacturing PMI resulted in the Caixin/S&P’s composite PMI rising to 52.6 in December from November’s 51.6, marking the highest reading since May.

The positive trend in the services sector extended into the new year, with travel data indicating an improvement in the number of domestic visitors during the New Year’s holiday. However, the contrasting downbeat PMI survey by the National Bureau of Statistics (NBS) suggests ongoing challenges for the world’s second-largest economy. Factors contributing to this include a lack of significant recovery in the property sector, consumer belt-tightening, and factories reducing selling prices.

Analysts attribute the divergence between the Caixin PMI and the official PMI to differences in geographic and sector coverage. In a bid 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. Market expectations of further interest rate cuts in China have increased as a result. The National Bureau of Statistics (NBS) is set to release additional economic indicators, including industrial output and retail sales, in the coming weeks.

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