China’s Services Sector Defies Manufacturing Downturn In July- Caixin

© Reuters.

By Ambar Warrick

Investing.com-- China’s services sector grew at a faster clip in July from the previous month as it benefited from easing COVID-19 restrictions, a private survey showed on Wednesday.

An independent survey conducted by Chinese media group Caixin showed that the Services Purchasing Managers Index (PMI) came in at 55.5 for July, higher than June’s reading of 54.5. The reading marks the second straight month of expansion for the sector, after a series of COVID lockdowns in major economic hubs crippled business activity in the country. 

A government survey of the same sector, released on Sunday, also showed an expansion for July. But manufacturing activity contracted in July, according to the government reading. 

China’s sprawling service sector, which consists of industries such as transportation, retail sales, and real estate, accounts for more than half of the country’s GDP.

Wednesday’s reading shows that despite a downturn in real estate and manufacturing activity, China’s consumption-driven economy has still retained some of its strength. The economy barely avoided a contraction in the second quarter, expanding by 0.4%. 

But with COVID lockdowns now easing in the country, China's economic prospects are expected to improve in the second half of the year, albeit slightly. The threat of more lockdowns, stemming from China's strict zero-COVID policy, has largely rattled foreign investors exposed to the country.

The service sector has been integral in keeping Chinese business activity in expansion territory over the past two months. Concerns over China’s zero-COVID policy have largely dented investment in the country’s manufacturing sector.

Disruptions in global commodity markets have also slowed Chinese factory activity this year.

Chinese stocks reacted positively to Wednesday's PMI reading, with the Shanghai Shenzhen CSI 300 blue-chip index up 0.1% in morning trade. The yuan also rose slightly to the dollar.