China’s services sector registered its most rapid expansion in 33 months in February, according to a private-sector survey released on Wednesday, with stronger demand - including a rebound in overseas orders - helping activity climb while firms faced mounting cost pressures.
The RatingDog China General Services PMI, compiled by S&P Global, rose to 56.7 in February from 52.3 in January, marking the highest reading since May 2023. The survey uses a 50-point threshold to distinguish expansion from contraction.
Combined with the companion manufacturing gauge, the services result pointed to an early-year uptick for some companies, with the Composite Output Index increasing to 55.4 in February from 51.6 in January. That composite reading was also the quickest pace of expansion since May 2023, reflecting accelerating output across both manufacturing and services.
Not all indicators were aligned. An official survey released earlier the same day indicated non-manufacturing activity contracted for a second consecutive month in February, a contrast to the privately compiled PMIs.
"External uncertainties and the current softness in employment may constrain the sustainability of this improvement to some extent. The Services PMI is expected to maintain its expansionary trend in the short term," said Yao Yu, Founder at RatingDog.
New business for service providers increased at the fastest pace in six months, the private survey found, helped by domestic promotional activity and a rise in client enquiries. The sub-index measuring overseas demand expanded at its quickest rate in a year, underlining that external orders contributed to the improvement.
Despite stronger inflows of work, firms cut staffing levels in February after a slight payroll increase at the start of the year. Respondents pointed to cost control as a factor behind workforce reductions, which in turn contributed to a further build-up in backlogs of work.
Cost pressures intensified during the month. Average input prices rose more quickly than in January amid higher wage and energy costs, prompting firms to raise output charges as demand strengthened. The sub-index tracking output prices reached its highest level in 21 months, while the related measure of output charges was at its highest since May 2024.
Business sentiment edged up marginally in February, although firms continued to express concerns about intense competition. The survey noted that structural imbalances, trade tensions and heightened geopolitical uncertainty remained prominent downside risks to the outlook.
Chinese leaders have been pledging to boost domestic consumption in the services sector and address entrenched overcapacity problems, amid concern that the export boom which helped cushion the economy from U.S. tariff shocks last year may be difficult to sustain.
Implications and focus
- The private-sector PMI readings point to a near-term improvement in demand for services and a pickup in overall output when combined with manufacturing data.
- Rising input costs and stronger output charges suggest margin pressure for some service providers, even as new business grows.
- Labour management and backlog accumulation indicate firms are balancing cost control with capacity constraints.