China’s services sector continued to expand in July, although growth slowed sharply as domestic demand weakened and business activity missed forecasts.
The latest RatingDog China General Services PMI fell to 50.4 in July from 54.1 in June. Economists had expected a reading of 53.7.
China Services Growth Loses Momentum
A PMI reading above 50 indicates expansion, while a figure below 50 signals contraction.
Although the index remained in positive territory, the July result showed that growth in China’s services sector had weakened considerably. It was also the lowest reading since September 2024.
The decline suggests that service providers are facing a more challenging operating environment after the stronger expansion recorded in June.
Business Activity and New Orders Slow
The weaker PMI result reflected slower growth in both business activity and new orders.
New business increased at a reduced rate for the second consecutive month. Companies mainly blamed softer demand from customers within China.
This indicates that domestic consumers and businesses may be becoming more cautious about spending.
Export Demand Remains Resilient
Despite weaker conditions at home, demand from overseas customers remained relatively strong.
Export orders continued to expand during July, helping to offset part of the slowdown in domestic business.
The resilience of international demand provided some support to service-sector companies during the month.
Employment Rises for a Third Month
China’s services companies continued to hire additional workers in July.
Employment increased for the third consecutive month, marking the longest uninterrupted period of job creation since the second half of 2024.
The continued rise in staffing suggests that many businesses still expect activity to remain positive in the near term.
Cost Pressures Continue to Ease
Input cost inflation slowed to its weakest level since January.
Lower cost pressures may provide some relief to service providers, particularly those dealing with weaker demand and limited pricing power.
Reduced inflation in operating expenses could also help companies protect their profit margins.
Business Confidence Falls Sharply
Despite continued expansion and improving cost conditions, business confidence weakened substantially.
Sentiment among service providers fell to its lowest level since February 2020.
The decline reflects growing caution about future demand, economic conditions and the strength of China’s recovery.
Companies still expect activity to expand over the coming months. However, their outlook has become significantly less optimistic.
China’s Economic Recovery Remains Uneven
The July services PMI suggests that China’s economy remains in expansion, but momentum is slowing.
Resilient export orders and continued hiring offered some positive signals. However, weaker domestic demand, slower new-order growth and falling business confidence raised concerns about the sustainability of the recovery.
Future PMI reports will be closely watched for signs that demand is stabilizing or that the slowdown is spreading across the wider economy.
