Services activity at lowest level since March

China's services activity eased further in June to reach its lowest level since March, according to a private report today.

The Caixin China General Service Purchasing Managers’ Index fell to 52 last month from 52.7 in May, according to the survey by financial information service provider Markit and sponsored by Caixin Media.

A reading above 50 signals growth while one below 50 means contraction.

The report said the modest rate of expansion was the slowest since February.

"The gauge for new business rebounded and was higher than the levels seen for most of last year, likely due to the re-acceleration of fiscal policy support," said Zhong Zhengsheng, director of macroeconomic analysis at CEBM Group. "New export business returned to contractionary territory, pointing to subdued foreign demand."

Zhong also pointed out that the employment measure fell further but remained in positive territory, suggesting that the capacity of the services sector to absorb labor had weakened. Gauges for input costs and prices charged by service providers both fell but stayed in expansionary territory, with the former still higher than the latter, showing that services companies remained under significant cost pressure.

The measure for business activity expectations rebounded slightly but remained at a relatively low level, a reflection that companies’ confidence in future prospects remained subdued, according to the report.

The Caixin China Composite PMI data, which covers both manufacturing and services, showed that business activity in China rose only marginally overall. The rate of expansion slowed to the weakest since last October, as signaled by the Composite Output Index edging down from 51.5 in May to 50.6 in June.

In comparison, the official general PMI released on Sunday dipped 0.3 points to 53. The manufacturing PMI remained flat at 49.4 in June, while the non-manufacturing PMI slipped 0.1 point to 54.2.

The lower composite PMI reading was driven by falls in the sector headline readings for both services and manufacturing, the report said.

Total new business at the composite level also rose at a softer pace in June compared to May.

Composite data indicated a second consecutive fall in job numbers across China’s private sector economy, while outstanding business at Chinese private sector firms increased marginally in June.

Expectations at Chinese firms regarding future activity fell to a record low for the second consecutive month in June. While service sector companies remained strongly optimistic, the outlook among manufacturers was only marginally positive overall. 

Some companies expected the launch of new products and expansion plans to boost output in the year ahead, while others were concerned about China-US trade tensions, according to the report.

"Overall, China’s economy came under greater pressure in June. The conflict between China and the United States impacted business confidence rather heavily. Although its impact on exports hasn’t been fully reflected in the short-run, the longer-term situation doesn’t look optimistic," Zhong said. 

"Future government policies to stabilize economic growth are likely to focus on new types of infrastructure, consumption and high-quality manufacturing," he added.