China services activity grows slightly below expectations in Jan- Caixin PMI

Investing.com-- Chinese service sector activity grew less than expected in January, a private survey showed on Monday, with the pace of growth slowing slightly from December amid persistent headwinds from a sluggish economic recovery.

The Caixin Services Purchasing Managers Index (PMI) grew 52.7 in January, missing expectations for a reading of 53 and slowing from the 52. 9 seen in the prior month. But a reading above 50 indicates growth in the sector, with the Caixin PMI having now remained in expansion territory for 13 consecutive months.

While the PMI did slow from the prior month, it still remained relatively high, with the Caixin survey also noting that employment, new order growth and overall activity remained robust. 

Services demand has remained a key bright spot for the Chinese economy over the past three years, even as other facets of business activity- particularly manufacturing- struggled amid disruptions caused by the COVID-19 pandemic. 

Monday’s Caixin reading, while weaker than expected, still contrasted with government PMIs released last week, which showed non-manufacturing activity remained close to contraction in January. 

The Caixin PMI differs from the official reading, particularly in the scope of businesses covered. The Caixin PMI covers smaller, privately-owned businesses, while the official PMI covers larger, state-backed businesses. Investors use both PMIs to get a broader view of the Chinese economy. 

Monetary stimulus measures from the Chinese government have freed up a considerable amount of liquidity in the country, keeping spending on services upbeat. Monday’s data also showed an improvement in foreign demand for Chinese services. 

But strength in the services sector has been so far insufficient in pulling the Chinese economy out of a post-COVID slump. Last week’s official PMIs showed manufacturing activity- a key driver of the economy- remained in contraction. A crisis in the country’s massive property sector also continued to worsen, especially with the court-ordered liquidation of beleaguered developer China Evergrande Group (HK:3333) last week.

Weakness in the broader economy is expected to keep growth in the service sector limited over the coming months.