China Services Sector Activity Accelerates
While US economic indicators begin to flash red, numbers from China show a split between services strength and manufacturing weakness. China’s Caixin Services PMI increased from 50.7 in April to 51.1 in May, aligning with consensus. According to the May survey:
- New business growth boosted service sector activity despite new export business falling for the first time in 2025.
- Services providers increased staffing levels in May, snapping two months of job cuts.
- Rising purchase prices and wage growth drove average input prices higher, though selling prices declined for the fourth month.
Dr. Wang Zhe, Senior Economist at Caixin Insight Group, remarked on the May survey, stating:
“Employment expanded. The labor market ended its two-month streak of contraction and recorded a modest expansion in May, with the corresponding gauge reaching a high not seen since November. Some companies continued to cut headcounts to control costs, while others hired more workers in response to increasing demand.”
While services sector activity improved, China’s manufacturing data painted a gloomier picture. The Caixin Manufacturing PMI fell to 48.3 in May, down from 50.4 in April.
Crucially, the PMI slid below the neutral 50 level and to its lowest since Q3 2022 as new orders dropped at the fastest rate in over two-and-a-half years. Weak overseas demand impacted the labor market, potentially dampening the effects of Beijing’s stimulus measures targeting household consumption.
The slump in manufacturing activity overshadowed the upswing in services sector momentum, leaving the Caixin Composite Index at 49.6 in May, down from 51.1 in April. Notably, private sector output fell for the first time since December 2022, with employment declining slightly.
Markets Eye Beijing for Stimulus and Trade Updates
Investors reacted to mixed PMI data as the focus returned to US-China trade headlines.
On June 5, Mainland China’s CSI 300 and Shanghai Composite Index edged 0.06% and 0.02% lower, respectively. In contrast, the Hang Seng Index rallied 0.94%, extending its year-to-date (YTD) gains to 19%, driven by tech stocks. The Roundhill China Dragons ETF is up 21% YTD, outperforming the Nasdaq Composite Index, which has gained just 0.78% YTD, weighed by a 2.7% fall in the MAG7.
This divergence highlights market expectations for Chinese stimulus and skepticism around US efforts to constrain China’s tech sector.
