BEIJING – China’s services sector expanded at a slightly quicker pace in May, driven by a rise in new orders compared to April. However, export orders declined amid ongoing uncertainty around U.S. tariffs, according to a private survey released Thursday.
The Caixin/S&P Global Services Purchasing Managers’ Index (PMI) edged up to 51.1 in May from 50.7 in April, staying above the 50 threshold that signals expansion.
The result closely mirrors China’s official PMI, which showed a slight increase in services activity to 50.2 from 50.1. While the official PMI tracks mostly larger and state-run firms, the Caixin index offers better insight into smaller, export-reliant businesses, especially along China’s eastern coast.
China’s economy posted stronger-than-expected growth in the first quarter, with authorities maintaining a 5% annual growth target. Still, analysts caution that U.S. tariffs could significantly slow progress.
Although Beijing and Washington have agreed to a 90-day truce that includes tariff reductions, concerns linger over whether negotiations will advance amid broader global economic uncertainty.
“External demand remained weak, with new export orders falling in both manufacturing and services,” said Zhe Wang, senior economist at Caixin Insight Group. “Business costs rose slightly, but sales prices continued to drop, squeezing profit margins.”
Despite stronger service sector performance, it wasn’t enough to balance a downturn in manufacturing output. The Caixin Composite PMI, which tracks both sectors, declined to 49.6 in May from 51.1 in April, indicating contraction for the first time since December 2022.
In response to economic pressures, China’s central bank recently eased monetary policy, including cutting the upper limit on deposit rates to support bank margins and encourage spending and investment.
While both supply and demand showed slight improvements, weak foreign demand – influenced by tariff concerns – led to the first drop in new export orders this year.
Job-related indicators stayed just above the neutral 50 level. Some companies trimmed staff to manage costs, while others expanded their workforce in response to growing demand.
Businesses in the services sector experienced the steepest rise in input costs since October 2024, largely due to higher procurement and labor expenses. Still, output prices fell for a fourth consecutive month in May.
Despite current challenges, business confidence remains positive for the year ahead, with firms hopeful that the impact of U.S. tariffs will fade.
“Negative factors are still quite prevalent,” Wang noted. “Rising uncertainty in global trade and domestic economic pressures are ongoing concerns. Previous measures to boost consumption need further assessment, and most importantly, stimulating domestic demand must start with improving household incomes.”
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