BEIJING (Reuters) – Growth in China’s services sector slowed to a four-month low in June as new orders from overseas customers fell, a private survey showed on Wednesday, adding to signs of strain on the economy as the U.S.-Sino trade war drags on.
The Caixin/Markit services purchasing managers’ index (PMI) fell to 52.0 in June, the lowest since February and down from May’s 52.7. The 50-mark separates growth from contraction.
New export orders placed with Chinese services firms contracted for the first time in nine months in June, with companies citing subdued global demand and tariffs.
Overall new business picked up, however, suggesting a string of government support measures for the economy over the last year were propping up domestic demand. The sub-index for new business rose to 53.4 in June from 52.9.
While business confidence improved somewhat from May’s 10-month low, many companies worried that weakening U.S.-China ties would weigh on activity in the coming year.
The United States and China agreed on Saturday to restart trade talks after President Donald Trump offered concessions including no new tariffs and an easing of restrictions on tech company Huawei <HWT.UL> in order to reduce tensions with Beijing.
But earlier tariffs imposed by both Washington and Beijing remain in place, and analysts are sceptical over whether a durable deal to end the trade war can be reached this year.
The dispute has broadened beyond tariffs on goods to other areas of such as the fast growing telecommunications equipment and services sector.
Beijing has been counting on a strong services sector to pick up the slack as exports falter and manufacturers shed jobs. But as the economy continues to struggle, consumers are tightening their belts on everything from clothes to cars.
Job creation in the services sector eased to only a marginal pace in June, even as factories shed jobs at a faster pace.
China’s official gauge on non-manufacturing activity has also been trending lower in recent months, though the headline readings have been higher than the private survey.
“Overall, China’s economy came under greater pressure in June,” said Zhengsheng Zhong, Director of macroeconomic analysis at CEBM Group, in a statement accompanying the Caixin release.
“The conflict between China and the U.S. impacted business confidence rather heavily. Although its impact on exports hasn’t been fully reflected in the short-run, the longer-term situation doesn’t look optimistic,”
“Future government policies to stabilise economic growth are likely to focus on new types of infrastructure, consumption and high-quality manufacturing.”
Premier Li Keqiang raised expectations of more policy easing this week by pledging to further cut banks’ reserve requirement ratios and lower real interest rates to help reduce funding costs for small firms.
Economists from Nomura said they expected China’s real GDP growth to drop from 6.4% in the first quarter to 6.1% in the second quarter, a record low since 1990.
Caixin’s composite manufacturing and services PMI, also released on Wednesday, slipped to 50.6 in June from 51.5 in May, reinforcing views the economy is continuing to lose momentum.
((Reporting by Lusha Zhang and Ryan Woo; Editing by Kim Coghill0; LushaZhang1@thomsonreuters.com; 8610-66271276)