The scale of the deceleration, from 54.1 to 50.4, is the sharpest single-month drop highlighted in the release and pushes the headline reading to its lowest since September 2024, a signal likely to reinforce concerns about the durability of China’s domestic demand recovery. The composite output index falling to a one-year low of 50.8 suggests the slowdown is not confined to services, with manufacturing also losing momentum, which could weigh on sentiment toward China-exposed assets more broadly. Resilient export growth, with new export business holding at 52.0, offers a partial offset and suggests external demand remains a relative source of strength even as domestic activity cools, a divergence markets may watch closely given ongoing global trade dynamics. The continued easing in input cost and output price inflation to multi-month lows, even as employment extended its longest growth streak since 2023, points to a labour market holding up better than activity growth, which could complicate the read on underlying momentum for policymakers weighing further stimulus.
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China’s service sector growth slowed sharply in July to its weakest pace in nearly two years, even as exports and hiring held up better than domestic activity.
Summary:
- RatingDog China General Services Business Activity Index fell to 50.4 in July from 54.1 in June, the slowest rate of growth since September 2024, though still in expansion territory
- Total new business rose for a 43rd consecutive month, but at the weakest pace since March, weighed by softer domestic demand
- New export business eased from June’s year-to-date high but remained firmly expansionary at 52.0, the second-highest reading this year
- Input cost inflation eased for a seventeenth straight month of increases, but at the softest pace since January; output prices rose for a second consecutive month, the first back-to-back increase in a year and a half
- Employment rose for a third consecutive month, the longest hiring streak since the second half of 2024, while backlogs of work grew for a ninth straight month, the longest since 2023
- Business confidence for the 12-month outlook remained positive but softened to its lowest level since February 2020
- The RatingDog China Composite Output Index fell to 50.8 in July from 53.6 in June, its slowest growth in a year, reflecting softer gains in both manufacturing and services
China’s service sector lost significant growth momentum in July, according to the latest RatingDog China General Services PMI survey, with the headline Business Activity Index falling to 50.4 from 54.1 in June, the weakest reading since September 2024. While the index remained above the 50.0 threshold separating growth from contraction, marking a continuous expansion stretching back to January 2023, the sharp deceleration in the rate of growth points to cooling momentum in China’s domestic services economy.
Total new business rose for a 43rd consecutive month, extending an expansion sequence of more than three and a half years, though the pace of growth eased to its weakest since March, weighed down by softer domestic demand. International demand told a different story, with services exports growing for a third consecutive month at a relatively strong pace. New export business eased slightly from June’s year-to-date high but remained firmly in expansionary territory at 52.0, the second-highest reading so far this year, with survey respondents linking stronger overseas client demand to exhibitions, study tours and increased settlement business.
Despite the slower growth in new work, service providers continued expanding their workforces, with employment rising for a third straight month, the longest sequence of job creation since the second half of 2024. Higher staffing levels were attributed to business expansions, increased project workloads and the launch of new services. Backlogs of work rose for a ninth consecutive month, the longest such streak since 2023, though the pace of backlog growth slowed as hiring kept better pace with incoming work.
On prices, input cost inflation eased for a seventeenth consecutive month of increases, slowing to its weakest pace since January and easing further from May’s 19-month high, as service providers reported continued relief from cost pressures tied to raw materials, labour, advertising and diesel. Even so, service providers raised their own output charges for a second consecutive month, marking the first back-to-back increase in prices for the sector in a year and a half, driven by cost pressures, oil price fluctuations and rising insurance premiums.
Business confidence regarding the year ahead remained positive but softened to its lowest level since February 2020, with firms citing business expansion plans, new product launches and promotional campaigns as reasons for optimism, even as some adopted a more cautious stance on the broader economic outlook. At the composite level, combining manufacturing and services, the RatingDog China Composite Output Index fell to 50.8 in July from 53.6 in June, its slowest pace of expansion in a year, reflecting softer gains across both sectors. Yao Yu, founder of RatingDog, said the services sector had seen a notable slowdown in July, but noted that resilient export business, sustained employment growth and easing cost pressures provided positive offsetting signals, adding that the pace of any recovery would depend on the strength of domestic demand and business confidence going forward.
This article was written by Eamonn Sheridan at investinglive.com.