China's services sector grows in August at fastest pace in more than a year

(Sharecast News) - Activity in China's services sector grew in August at the fastest pace in more than a year, according to a private survey released on Wednesday.

The RatingDog China general services business activity index rose to 53.0 from 52.6 in July, coming at the highest level since May 2024.

A reading above 50.0 indicates expansion, while a reading below signals contraction.

RatingDog founder Yao Yu said: "This seasonally adjusted index reading was better than the 51.6 recorded in the same period last year and the average level over the past year. On the positive side, the index measuring overall new business saw a significant jump to its highest point since May of last year, while new export business expanded at the quickest pace since February. This was largely driven by more stable domestic demand and a recovery in foreign demand. At the same time, service sector businesses remained optimistic about the future, with overall confidence the joint-highest since March.

"Regarding prices, input prices rose slightly, though the pace of increase has slowed and the index is gradually approaching the neutral line. Critically, companies have not been able to fully pass on these costs, with the output prices index falling back into contraction territory. This suggests that profit margins have been under continuous pressure since November 2023, with no significant relief to date.

"Overall, the performance of the service sector in August was quite notable. However, the persistent pressure on output prices, and thereby profits, suggests that the service sector recovery may be imbalanced. While this short-term boost is positive for business activity, the ongoing pressure on corporate profits could create negative feedback in the long term. Whether prices can be effectively passed on and if there are signs of improving domestic demand will be crucial for assessing the likelihood of a sustained economic recovery."