Growth in China’s services sector increased in April

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Growth in China’s service sector picked up in April as new business and employment grew at a faster rate, a private survey showed on Friday, signalling a solid rise in a sector that Beijing is counting on to maintain economic growth.

The Caixin/Markit services purchasing managers’ index (PMI) climbed to 52.9 in April from March’s four-month low of 52.3, though it remained weaker than levels in 2018’s first two months. The 50-mark separates growth from contraction.

The findings were similar to those of an official gauge of the non-manufacturing sector earlier this week, which showed April’s services PMI rising to 54.8 from March’s 54.6.

Strength in services bodes well for policymakers aiming to boost domestic demand at a time a possible trade war with the United States causes concern there could be a loss of economic momentum in China.

As the Caixin services survey came out, top-level Trump administration officials are in China for important trade talks.

The services sector already accounts for more than half of China’s economy, with rising wages giving its consumers more spending power at home and abroad.

Growth in new business orders accelerated in April due to improving market conditions, greater tourist numbers and new product offerings. This led to the first back-to-back monthly increase in outstanding work for Chinese services providers since mid-2007, the survey showed.

New projects and efforts to raise operating capacity contributed to a further rise in employment in April, albeit the increase in the growth rate was only marginal.

Inflationary pressures continued to cool across China’s service sector as input prices grew at the slowest pace in April in six months while the increase in prices charged by services providers was only modest.

Business expectations towards the year ahead, improved slightly in April, supported by ongoing company expansions, projects of improving market conditions and increasing client bases.

Caixin’s composite PMI covering both the manufacturing and services sectors showed a similar pattern of firming growth, rising to 52.3 in April from the previous month’s 51.8, indicating relatively stable economic growth.

“The operating conditions of the service sector improved more significantly than the manufacturing sector,” said Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group.

“Overall, expectations regarding future output weakened due to reduced optimism across the manufacturing sector, which may further weigh on investment in the manufacturing industry.”

Economists expect China’s economic growth to ease to 6.5 percent this year, in line with Beijing’s target but below a forecast-beating 6.9 percent in 2017, with a regulatory crackdown on the finance sector and the trade dispute with the United States seen as key risks, a Reuters poll showed.

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