Chinese services companies lead strong business activity in April

Chinese business activity continued to expand strongly in April, driven largely by services companies, the latest Caixin business report released on Monday revealed.

The Caixin China Composite Output Index stood at 52.7, which was down only slightly from a nine-month high of 52.9 in March.

“The slip of the Composite Output Index was partly due to slower growth in the manufacturing sector,” said Zhong Zhengsheng, director of Macroeconomic Analysis at CEBM Group.

Notably, the seasonally adjusted Caixin China General Services Business Activity Index — or services purchasing managers’ index — that tracks small and medium private companies, edged up to 54.5 last month from 54.4 in March, to mark its second-highest level since May 2012, according to a survey conducted by financial information service provider Markit for Caixin Media.

Meanwhile, the rise in the manufacturing sector improved for the second straight month, albeit at a softer pace.

“The rise in services activity was supported by a strong increase in new business across the sector. This was despite the rate of new order growth softening slightly since March,” Caixin said.

According to Caixin, improved marketing strategies, new product offerings and firmer underlying market demand supported the latest increase in sales.

The amount of new work received by manufacturing companies increased only slightly. Consequently, composite new orders expanded at a modest rate that was softer than in March.

The amount of new export work received by services companies rose at the sharpest pace since the series began in late-2014 in April. A number of firms sought stronger demand across key markets and greater efforts to develop foreign client bases, the report said.

In contrast, manufacturing export sales declined, though the rate of reduction was only slight. At the composite level, new export orders fell marginally following an increase at the end of the first quarter.

Employment trends diverged by sector in April, with service providers adding to their payroll numbers, while manufacturers posted a decline.

Though modest, the latest increase in service sector staffing levels was the quickest recorded in 10 months, with some firms linking growth to greater amounts of new business. Meanwhile, workforce numbers at manufacturers declined slightly after the first increase in over five years in March, the report said.

The measure for business expectations fell despite staying in positive territory, reflecting services providers’ weakening confidence in their future prospects, Zhong said.

At services companies, sentiment edged down to its joint-lowest in five months. Manufacturers, meanwhile, saw optimism improve slightly to an 11-month high but remain relatively soft overall.

“In general, China’s economy looked resilient in April, especially in the services sector. However, pressure on costs across the services sector remained relatively high, limiting companies’ profit growth potential,” Zhong said.

“Market participants must remain patient and wait for the economy to stabilize. We expect policymakers to slightly restrain countercyclical policies, and focus more on structural and systematic policies.”