China Services Activity Grows At Rapid Pace — Profit Margins Remain A Concern

China’s services sector grew at the fastest pace since May 2024, driven by a surge in new orders and a stronger-than-expected rise in export business.

According to S&P Global data, the headline RatingDog China General Services Business Activity Index rose to 53.0 in August, up from 52.6 in July. The 50 mark separates growth from contraction and extends the current period of growth that began in January 2023.

“This was largely driven by more stable domestic demand and a recovery in foreign demand. At the same time, service sector businesses remained optimistic about the future, with overall confidence the joint-highest since March,” Yao Yu, the founder at RatingDog, said.

The Chinese economy has struggled to gather momentum after the pandemic, hurt by a property market slowdown and a dip in consumer sentiment. Beijing has taken several steps to boost consumption, including fresh incentives, and has also declared a war on brutal price wars, which have had a deflationary effect on the economy.

Retail sentiment on Stocktwits about the iShares MSCI China ETF (MCHI) was in the ‘bullish’ territory at the time of writing.

The report added that successful business development efforts, improvements in market conditions, and increased tourism were key drivers of sales growth. China also benefited from strong exports as Beijing and Washington, D.C., agreed to extend a tariff truce in July.

However, in a worrying sign, average input costs continued to tick higher in August, based on higher wages and raw material costs, marking the sixth successive month of cost inflation. The Chinese firms opted to absorb most of those cost increases to maintain market share amid intense competition.

“The persistent pressure on output prices, and thereby profits, suggests that the service sector recovery may be imbalanced,” Yao noted.

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