Weakened demand and falling export orders drag sector
China’s services sector expanded at its slowest pace in nine months in June, according to the Caixin/S&P Global services PMI, which dropped to 50.6 from 51.1 in May. While still indicating expansion, the reading reflects mounting pressure on businesses amid fragile trade conditions and slowing domestic demand.
This figure aligns with the official government PMI, which slipped slightly to 50.1, highlighting a consistent slowdown across both large state firms and smaller, export-oriented enterprises. Analysts view the Caixin survey as a more accurate reflection of conditions among smaller businesses along China’s export-dependent eastern coast.
“The external environment remains severe and complex,” said Wang Zhe, Senior Economist at Caixin Insight Group. He noted ongoing challenges such as insufficient domestic demand and an uncertain global trade outlook despite a U.S.-China trade truce framework.
Export orders shrink, hiring slows
The services PMI showed notable softening in new orders and exports, with the export sub-index falling at its fastest rate since December 2022. Hiring also declined after showing growth in May, leading to the largest backlog in outstanding business in a year.
Average input costs increased more slowly in June, but intense price competition among service providers led to the steepest drop in output prices in over three years. Companies appear to be slashing prices to retain customers in a weakening demand environment.
Composite PMI rebounds, but outlook cautious
Despite the slowdown in services, China’s broader economic activity saw a modest rebound. The Caixin China General Composite PMI, which includes both services and manufacturing, rose to 51.3 in June from 49.6 in May, returning to expansion territory.
Still, businesses remain cautious. Optimism for future activity was largely unchanged from the previous month, underscoring the sector’s continued uncertainty over growth prospects amid property sector woes, deflationary pressures, and uneven policy support.