China's services growth hits three-month low in October, PMI shows

Synopsis

China's services sector expanded in October, but at its slowest pace in three months, as declining overseas orders outweighed improved domestic demand. While new business grew, export orders contracted for the first time in four months due to global trade uncertainties. Employment also declined, and input costs rose, pressuring profit margins.

China's services activity expanded in October but at its slowest pace in three months, as a decline in overseas orders offset the boost from improved domestic demand, a private survey released on Wednesday showed.

The RatingDog China General Services PMI, compiled by S&P Global, slipped to 52.6 from 52.9 in September, staying above the 50-mark that separates growth from contraction.

This contrasted slightly with the government's official PMI released on Monday, which rose to 50.2 from 50.1 in September, reflecting differences in sample coverage.

RatingDog's index is viewed as a better gauge of smaller, export-oriented service providers along China's east coast, while the official PMI primarily tracks large and medium-sized enterprises, including state-owned companies.

China remains on track to meet its economic target of around 5% this year, though a prolonged property slump, weak domestic demand, and trade uncertainty continue pressuring policymakers to introduce more stimulus.

Policymakers last month unveiled their economic plan for 2026-2030, prioritising manufacturing and technology self-reliance while pledging to boost consumption.

The survey showed growth in the services sector was driven by faster expansion in new business, while new export business contracted for the first time in four months, with survey respondents citing global trade uncertainties.

U.S. President Donald Trump and Chinese President Xi Jinping last week reached an agreement including U.S. tariff reductions and a pause on Beijing's new restrictions on rare earth minerals and magnets, extending a fragile trade truce between the world's two largest economies.

"Sustained employment contraction and pressure on profit margins remain the main constraints facing the sector," said Yao Yu, founder at RatingDog.

On the employment front, staffing levels declined at a quicker pace in October as capacity pressure eased. Service providers reduced outstanding business for the first time since March.

Input cost inflation accelerated to a one-year high, driven by higher raw material and wage costs. However, selling prices were lowered as companies absorbed cost increases to support sales amid intensifying competition.

Overall sentiment about the one-year outlook remained positive but weakened a little, with some companies concerned about global trade prospects and increased competition.

The Composite Output Index fell to 51.8 in October from 52.5, reflecting weaker output growth across both manufacturing and service sectors.