China’s Services Sector Expands More Than Expected in August - Caixin

By Ambar Warrick 

Investing.com-- Chinese service sector activity expanded more than expected in August, a private survey showed on Monday, as solid consumer spending helped the sector weather COVID and energy-related headwinds this year. 

The Caixin services purchasing managers index read 55 for August, compared to July’s reading of 55.5. Analysts were expecting a reading of 54 for August.

The reading indicates that certain aspects of the Chinese economy, particularly consumer spending, remained steady despite weakness in the manufacturing sector. 

Strength in Chinese consumer trends kept overall economic activity in the country in positive territory through August. This comes after the Chinese economy barely registered growth in the second quarter of 2020. 

“Both supply and demand in the sector expanded… Although some firms mentioned that the recent Covid outbreaks affected their operations, the majority reported that business improved,” said Wang Zhe, Senior Economist at Caixin Insight Group wrote in a release. 

Still, service sector employment remains constrained. Overseas demand for Chinese goods is also slowing due to broader economic headwinds, although local demand remains underpinned.

Signs of strength in consumer spending may also come as a relief for China's debt-saddled real estate sector, which is struggling with weakening sales and rising debt. 

Monday’s data comes after both government and Caixin data released last week showed China’s manufacturing sector shrank in August, as a drought-driven power crunch in some parts of the country exacerbated headwinds from COVID-19 lockdowns. 

The country is struggling with a new wave of COVID-19 cases, which saw lockdown measures introduced in economic hubs Chengdu and Shenzhen this month.

Beijing’s reluctance to budge on its strict zero-COVID policy is at the heart of China’s economic woes this year. COVID outbreaks earlier in the year caused widespread disruptions in economic hubs such as Shenzhen.

This was exacerbated by an energy shortage over the past two months, which also impacted industrial activity.