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China Services Sector Seen in Good Shape

China Services Sector Seen in Good ShapeChina Services Sector Seen in Good Shape

China’s services sector got off to a flying start in 2018, expanding at its fastest pace in almost six years as new orders surged and companies rushed to hire more staff, a private survey showed on Monday.

Economists also attributed the robust strength in services in January to better access to bank loans at the start of the year and solid demand before the long Lunar New Year celebrations, which fall in mid-February, Reuters reported.

The Caixin/Markit services purchasing managers’ index rose to 54.7 in January from December’s 53.9, marking the highest reading since May 2012. The 50-mark separates growth from contraction on a monthly basis.

The upbeat findings, which echoed those of an official gauge of the non-manufacturing sector last week, bode well for Beijing’s longer-term goal of overhauling and modernizing its economic growth model.

The government is counting on growth in consumption and services, particularly in high value-added areas such as finance and technology, to reduce the economy’s traditional reliance on heavy industry, investment and exports.

The services sector already accounts for over half of China’s economy, with rising wages giving its consumers more spending power at home and abroad.

New business increased at the fastest pace in 32 months, the Caixin survey showed, with respondents linking the rise to new projects, company expansions and greater initiatives to win new clients. The effort led companies to hire new workers at the fastest pace in five months.

Better access to financing likely also played a role in the sharp improvement in business conditions, some analysts said. The survey focuses on small and medium-sized firms which traditionally tend to have a tougher time securing funds than their larger state-owned peers.

“Banks normally dole out more credit at the start of the year, as opposed to being restrained by the lending quota last year,” said Wendy Chen, a Shanghai-based economist at Nomura.

“IT-related services are a big driver behind the growth in services. We expect it to continue its momentum for the remainder of the year.” However, firms’ strong optimism about the business outlook over the next year eased to a four-month low on concerns that economic conditions may soften.

Profit margins also remained under pressure. Many companies reported a stiff rise in input costs for raw materials, transportation and salaries, but the survey suggested they were having a tough time passing higher costs on to their customers.

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