China’s Service Sector Continues Growth Amid Economic Drag

Gerik

Summary:

China’s services industry extended its post-pandemic growth streak into October, supported by domestic consumption and holiday travel, despite broader signs of economic slowdown...

Sustained Expansion in Services Despite Weak Overall Growth

The RatingDog China Services Purchasing Managers’ Index (PMI) recorded a reading of 52.6 in October, slightly below September’s 52.9 but still indicating expansion for the tenth straight month. The figure surpassed Bloomberg’s economist forecast of 52.5, signaling resilience in the sector thanks to holiday-driven travel and household spending. This contrasts with weaker performances in manufacturing and construction, which continue to be weighed down by slowing investment and exports.

China’s October services activity received a timely boost from extended autumn holidays and the kickoff of its annual shopping festivals. While manufacturing and construction remain subdued, the services sector benefited from increased domestic travel and consumer spending, particularly in tourism and entertainment.

Despite a drag from the broader economy, services managed to hold momentum. However, employment in the sector continued to contract, and firms struggled with thinning profit margins, as highlighted by RatingDog founder Yao Yu.

Policy Focus on Domestic Demand

As global demand for Chinese exports softens and private sector investment falters, China is increasingly turning to services and domestic consumption as key growth drivers. Officials recently rolled out a series of measures to support the sector, including infrastructure investments and initiatives to promote consumer lending.

The government’s upcoming 2026–2030 Five-Year Plan also emphasizes expansion of public services and employment generation, although industrial policy and self-sufficiency in technology remain central strategic priorities.

Mixed Market Outlook and Structural Priorities

Despite recent policy efforts, major institutions remain cautious about the broader economic outlook. Bloomberg Economics points out that while cash incentives for families and seniors mark a shift in strategy, they are insufficient to spark lasting consumer confidence without long-term commitments.

Although full-year GDP growth of around 5% remains achievable, many analysts forecast only around 4% growth in coming quarters. Goldman Sachs has adopted a more optimistic tone, citing reduced trade tensions and a likely pause in tariff escalations, with Asia-Pacific Chief Economist Andrew Tilton noting that consumption is more a “nice to have” for Beijing, while manufacturing and technology continue to anchor long-term growth strategies.

October’s service sector data reflects a steady if fragile pillar in China’s economic landscape. While services are benefiting from consumer activity, the country’s reliance on industrial strength remains dominant. Future resilience in the services sector will depend on deeper reforms, sustained policy support, and a stronger rebound in consumer confidence.

Source: Bloomberg

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