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China economy

China’s service activities expanded in December despite broader economic slowdown

  • The service sector purchasing managers’ index (PMI), compiled by Markit and published by Caixin, rose in December.
  • By comparison, China’s manufacturing sector has been hit hard by an economic slowdown
PUBLISHED : Friday, 04 January, 2019, 4:00pm
UPDATED : Friday, 04 January, 2019, 4:16pm

Growth in the Chinese service sector accelerated to a six-month high in December, according to a private gauge released on Friday, demonstrating some resilience in the world’s second largest economy.

The service sector purchasing managers’ index (PMI), compiled by Markit and published by Chinese financial news outlet Caixin, rose to 53.9 in December. The measurement is well above 50.0, the point between expansion and contraction, showing services were performing strongly in the last month of 2018.

The pickup in the Caixin reading, which is based on a survey of over 400 companies, is a rare good news story for the Chinese economy, the prospects of which are clouded by a trade war with the United States.

Despite the US-China trade war, new export orders in the Chinese service sector also rose to a six-month high last month, with export companies stepping up their overseas sales and marketing.

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Service industries, which covers a wide range of sectors from banking to catering, are increasingly important for China’s economy, as the country gets richer and its citizens’ spending power increases.

According to nominal gross domestic product figures for the third quarter of 2018, released by the National Bureau of Statistics, the services sector, also known as tertiary industries, accounted for half of China’s output in the third quarter of 2018.

By comparison, the industrial and manufacturing sectors accounted for 40 per cent. The other 10 per cent was contributed by farming.

China’s service sector is also expanding faster than manufacturing. In the third quarter, the service sector grew by 7.9 per cent from a year earlier, while industrial output rose only 5.3 per cent, according to government data.

China’s manufacturing PMI published by Caixin on Wednesday dipped into contraction in December, the first negative reading since June 2017.

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The Caixin reading for services is stronger than that of the National Bureau of Statistics, which released figures on Monday showing a contraction in service PMIs. This is likely to be due to a different pool of companies being surveyed.

Furthermore, the Caixin service PMI showed that employment in the sector dropped to a three-month low in December, indicating some overall weakness, despite the positive PMI reading.

“The employment gauge slipped further into negative territory, implying increasing challenges to stabilising employment, which was the broader context of December’s central government policy to increase jobs,” Zhong Zhengsheng, director of macroeconomic analysis at CEBM Group, said in a statement on the data.

The overall employment across the Chinese economy also contracted further at the end of 2018.

Keeping growth on track and creating enough jobs are set as the priorities for the Chinese leadership in 2019, according to the Central Economic Work Conference held last month, which also highlighted the urgency of building up a strong domestic market.