Introduction
China's services activity experienced a notable increase in March, reaching a three-month high, as reflected in a private sector survey released on Thursday.Context
The Caixin/S&P Global services purchasing managers' index (PMI) rose to 51.9, up from 51.4 in February, marking the highest level since December. This aligns closely with the official services PMI, which increased to 50.3 from 50.0. The encouraging survey results signal positive signs for China's economic growth, leading Standard Chartered to upgrade its GDP growth forecast for the first quarter of the year to 5.2% year-on-year from the previous estimate of 4.8%.Developments
However, external pressures loom as U.S. President Donald Trump announced a 10% baseline tariff on all imports to the U.S., alongside increased duties on several countries. Chinese imports will face a hefty 34% tariff in addition to the previous 20%, bringing the total levy to 54%. This could threaten the growth momentum and exports of China, the world's second-largest economy.In 2023, approximately 48% of employees were engaged in China's services industry, which contributed 56.7%% to the country’s total GDP last year. However, Trump's trade actions are poised to adversely impact the manufacturing sector, potentially clouding hiring plans and diminishing consumer confidence amid ongoing job and income uncertainties.
Wang Zhe, an economist at Caixin Insight Group, noted the need for China’s macroeconomic policies to become more proactive and decisive by 2025, urging the implementation of measures to foster a sustained economic recovery amid increasingly complex external conditions.
The Caixin services survey also indicated that new business growth surged, reaching the strongest pace since December, chiefly due to robust domestic demand. Conversely, the volume of new export business remained unchanged in March. Respondents credited supportive policies and improved demand conditions for the rise in new orders.
Business sentiment within the services sector remained optimistic in March, with participants expressing hope that supportive domestic policies and business development efforts would enhance sales and production in the coming year.
Despite increased average input prices in March, which followed a slight decline in the previous month, average output charges fell at their fastest rate in six months as services firms absorbed rising costs. Alarmingly, employment levels saw a significant decline, marking the steepest drop in 11 months, attributed to both resignations and redundancies tied to cost concerns.
In light of these challenges, economic scholars from Peking University are advocating for the services sector to stimulate consumption, noting that the current consumer goods trade-in subsidy scheme is insufficient to drive broader economic activity.