Policy Stimulus Sparks Accelerated Growth in China's Service Sector
Recent private surveys indicate that China's service sector witnessed accelerated growth in May, with new orders outpacing April's figures despite the economic uncertainties stemming from the US tariff hikes. Analysts attribute this surge to vigorous macroeconomic policies and a potential easing of Sino-US trade tensions. However, they caution against overestimating the impact of the tariff truce.
As per the report from Caixin, a Chinese media group, the service sector activity index rose to 51.1 in May from 50.7 in April, marking the 29th consecutive month above the 50-point threshold that separates growth from contraction.
Caixin's senior economist Wang Zhe noted that both supply and demand expanded at a slightly faster pace as businesses sought new clients. However, foreign demand suffered due to global trade conflicts, with new export business contracting for the first time this year.
Looking ahead, the report suggests that fiscal policy will play a pivotal role in growth stabilization. Analysts predict that the focus will be on boosting consumption, accelerating infrastructure investment, and propping up the real estate sector.
The Political Bureau of the Communist Party of China Central Committee emphasized in late April the need for unconventional countercyclical adjustments and more proactive macro policies. In line with this, Wang Qing, chief macroeconomic analyst at Golden Credit Rating International, anticipates that policymakers will prioritize expanding domestic demand, particularly via consumption promotion, accelerated infrastructure investment, and a stable housing market.
Morgan Stanley's chief China economist Robin Xing forecasts that policymakers will front-load the 2 trillion yuan stimulus in the second and third quarters and may introduce an additional 500 billion yuan to 1 trillion yuan fiscal package in the early fourth quarter to support key sectors.
Despite the service sector's slight improvement, the manufacturing contraction weighed on the overall market. Wang highlights that the sustainability of previous consumption-boosting measures needs assessment. He stresses that boosting domestic demand should focus on improving household incomes through enhancing the employment environment, strengthening social security, and raising disposable income.
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