China's services sector grew slowly in May but momentum remains

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02:46

Growth in China's services sector came down off a 15-month high in May, according to the latest private industry survey from Caixin. Experts said China's services sector maintained growth momentum and the slowdown was a temporary dip, predicting more target-based liquidity injection in the second half of this year.

Softer growth in new business saw Services Purchasing Managers' Index slip to 52.7 last month, below April's 54.5 high. The survey revealed that growth in input costs for business is outpacing the growth in prices they charge consumers. Caixin's researchers said the figures suggest services companies remain "under significant pressure."

But as the figure was still comfortably above the 50 point mark that separates growth from contraction, Liu Xuezhi, a senior analyst at Bank of Communications, considered this as a temporary dip.

Monthly data shows total consumption in China is shrinking, especially car sales. / VCG Photo

"The reading means that domestic demand is cooling a bit at the moment. You have to look at the whole picture, which shows that total consumption is shrinking, especially car sales. But these are just monthly figures, and I don't think we are losing the momentum yet," Liu said.

Meanwhile, official data, which focuses on large, state-owned enterprises, told a slightly different story. The non-manufacturing PMI, which includes services, remained unchanged from April's 54.3.

The escalating trade tensions between the two largest economies are more sensitive to the smaller-sized companies, which might be the reason behind the difference, according to Jimmy Zhu, a chief strategist at Fullerton Research.

Zhu also expects that the government would introduce more stimulus measures toward smaller-sized firms.

"We expect the PBOC will continue to look for lowering borrowing costs for small- and medium-sized companies. To achieve that, we think more target-based liquidity injection, like MLF and SLF, will happen more frequently in the second half of this year," the strategist said.