The services sector continued to expand at a steady pace in May, with companies in the sector showing strong confidence in the economic prospects in a year’s time, according to a private survey released on June 5.
Analysts said the survey results show that the Chinese economy remains on track, although policymakers should closely monitor the adverse effect of credit contraction on small enterprises. The Caixin/Markit Services Purchasing Managers’ Index (PMI) stood at 52.9 in May, unchanged from April. The composite index, which combines both manufacturing and services PMI, was 52.3 last month, also unchanged from April. A reading above 50 indicates growth.
“The index of expectations regarding future output rose to a relatively high level, suggesting optimism across both the manufacturing and service sectors,” said Zhong Zhengsheng, director of macroeconomic analysis at CEBM Group, in a statement released along with the data.
“However, attention needs to be paid to the impact of the recent credit contraction on small businesses.”
China has strengthened financial regulation to prevent risky and irregular financial activities from incurring systemic financial risks, leading to credit contraction that has affected the corporate sector’s access to bank loans.
The new business sub-index in Caixin/Markit Services PMI dropped to 52.5 in May from 53.0 in April, but surveyed enterprises said they had hired at the fastest pace since January.
Input prices rose at a slightly faster pace and survey respondents said higher wages and transportation-related costs have led to rising costs.
Surveyed manufacturing and services enterprises showed higher level of confidence than the previous month in their business prospects, with the sub-index measuring confidence of services companies reaching a one-year high, according to Caixin Media. The continual corporate expansion, improving market conditions and upgraded products have combined to back up the rising optimism, it said.
However, surveyed enterprises reported slower growth in new orders and weaker pricing power as a result of intense market competition.
China has made efforts in recent years to shift to a services and innovation-based economic growth pattern. The services sector accounted for 58.8 percent of the country’s GDP growth in 2017 and the ratio has further risen in the first quarter of this year, according to the National Bureau of Statistics.