China’s services sector surges 54.0% in May – Caixin PMI

China’s service economy saw a surge in activity in May, driven by a rise in new business and exports, according to a Caixin PMI survey published on Wednesday.

However, business confidence dipped to a seven-month low as concerns about the global economic climate and inflation mounted.

The Caixin China General Services Business Activity Index climbed to 54.0 in May, up from 52.5 in April. This marks the 17th consecutive month of expansion and the fastest pace of growth since July 2023.

A key factor behind the acceleration was a significant increase in new business inflows. Incoming work grew at its strongest pace since May 2023, with export business also expanding at a one-year high.

Survey respondents cited improvements in domestic and external market conditions, along with new product launches, as reasons for the rise in new work.

Due to increased activity, service providers hired more staff for the first time in four months, with modest growth but the fastest since September 2023. This helped companies handle workloads, reducing backlogged tasks in May.

However, inflationary pressures intensified in May as average input costs increased for nearly four years, reaching their fastest pace in 11 months. Material prices rose, leading to higher production costs for businesses.

In response, service providers passed on some of these cost burdens to clients. This resulted in the fastest increase in average prices charged since January 2022, although the rate of inflation remained moderate and above pre-pandemic levels.

While the service sector remained positive overall, business confidence dipped to a seven-month low in May. This decline reflects concerns about the global economic environment and the potential impact of inflation.