BEIJING (Reuters) – The expansion of service activity in China slowed slightly due to rising costs, but new order growth accelerated and business confidence rose solidly, boosting hopes for a sustained economic recovery, a private sector survey showed on Monday .
The Caixin/S&P Global services purchasing managers’ index (PMI) fell to 52.5 from 52.7 in March, remaining in expansionary territory for the 16th consecutive month. The 50 mark separates expansion from contraction.
The world’s second-largest economy grew faster than expected in the first quarter but still faces a number of challenges, including a continued housing decline and weak domestic demand.
“The strong start to the year is in line with Caixin’s manufacturing and services PMIs, which remained in expansionary territory for several consecutive months,” said Wang Zhe, senior economist at Caixin Insight Group.
Overall, new business reached its highest level since May last year, while improving external demand and growth in tourism activity helped new export order growth reach its highest level in a decade.
This, in turn, helped lift business confidence among Chinese service providers over the next 12 months to its highest level this year.
Companies continued to face some cost pressures as input prices for materials, labor and energy rose, but the increase remained below the long-term survey average. This led companies to raise prices for their customers while remaining hesitant to fill the vacancies created by churn.
“Consistent efforts should be made to ensure that previous measures are implemented effectively and in a timely manner to maintain the current economic recovery momentum and ultimately improve overall market expectations,” Wang said.
Economists say the Caixin survey is more biased toward smaller, export-oriented companies than the much broader official PMI, which showed a sharp slowdown in services sector activity last month.
The Caixin/S&P composite PMI, which tracks both the services and manufacturing sectors, rose to 52.8 last month from 52.7 in March, marking the fastest increase since May in 2023.
China’s economy has struggled to find a solid recovery following the COVID-19 crisis, largely due to the impact of an ongoing crisis in the real estate sector on confidence and demand.
While some strength in the first quarter GDP report raised hopes of a steady recovery for the rest of the year, economists generally agree that a strong recovery is still a long way off.
Investors and analysts say China’s structural reform efforts must be accompanied by larger stimulus measures to promote a stronger and sustainable economic recovery.
(Reporting by Liangping Gao and Ryan Woo; Editing by Shri Navaratnam)