China's July RatingDog Services PMI Falls to 50.4, Marking 43 Consecutive Months of Expansion; Employment and New Export Business Grow for Third Straight Month

China's services sector continued its growth trajectory in July, although the momentum of expansion weakened noticeably. Employment expanded for the third consecutive month, and new export business remained resilient, yet market confidence slipped to its lowest level in over six years.

On August 5, the latest PMI survey data from RatingDog showed that China's General Services Business Activity Index dropped sharply from 54.1 in June to 50.4 in July, marking the lowest reading since September 2024, with the services sector's expansion slowing for the second consecutive month.

Meanwhile, the Composite Output Index fell from 53.6 in June to 50.8, representing the slowest growth rate in nearly a year.

Although overall growth momentum is converging, employment expanding for the third straight month, the resilience of new export business, and the continued decline in input cost inflation provide some positive support to the current services sector landscape. Yao Yu, founder of RatingDog, stated that the Services PMI is expected to remain above the 50 threshold in the short term, but the pace of recovery will depend on the strength of domestic demand and the trend of corporate confidence.

Slowdown in Both Activity and New Business Expansion

The July reading of 50.4 for the Services Business Activity Index means that services output has grown for 43 consecutive months, but the expansion speed for the month was the slowest in nearly a year. The total volume of new business also continued to grow, extending its streak of expansion to over three and a half years, although the growth rate fell to a four-month low.

Yao Yu pointed out that the drivers of business activity growth included customer acquisition, project wins, business development, and growth in AI-related services.

Composite PMI data showed that new business grew for the 14th consecutive month in July, but at the slowest pace since March this year, with declines seen in both the manufacturing and services sectors.

Export Business Remains Resilient, Becoming a Relative Bright Spot

Against the backdrop of pressured domestic demand, service exports performed relatively steadily. New export business in the services sector expanded for the third consecutive month in July, maintaining a relatively fast growth rate. The relevant index recorded 52.0, the second-highest reading this year.

Survey data indicated that the growth in overseas client demand was related to exhibition activities, study tours and visits, increased settlement business, and effective customer management. Yao Yu stated that the resilience of overseas demand was one of the few positive signals in July's services sector data.

Employment Grows for Three Consecutive Months, Creating Longest Expansion Streak Since Second Half of 2024

Despite the slowdown in overall business expansion, the scale of employment in the services sector continued to expand. Employment in July recorded growth for the third consecutive month, marking the longest consecutive expansion streak since the second half of 2024. Reasons for hiring included business scale expansion, increased project workload, and the launch of new business lines.

Continuous employment growth has also helped digest the increment of backlogged work to some extent, with the growth rate of unfinished business backlog slowing down. However, the backlog of work has risen for the ninth consecutive month, the longest continuous growth sequence since 2023, reflecting that overall demand still has support.

Under the Composite PMI framework, employment also expanded for the third consecutive month, setting the longest continuous growth record since mid-2023.

Cost Pressures Continue to Ease, Selling Prices Slightly Raised

Cost pressures in the services sector continued to ease in July. Although input costs have risen for 17 consecutive months, the inflation rate further cooled, falling to its lowest level since January 2026—also far below the nearly 19-month high reached in May. Rises in raw materials, labor, advertising, and diesel prices were the main cost drivers.

As the rise in costs slowed, service providers still chose to raise their charging standards, increasing prices for the second consecutive month. This marks the first time in a year and a half that prices have risen consecutively. The price hikes were attributed to the pass-through of cost pressures, rising operating expenses, oil price fluctuations, and adjustments in insurance rates.

Under the Composite PMI framework, both input price and output price inflation fell to six-month lows.

Additionally, regarding future expectations, while the overall confidence of the services sector for the next 12 months remained in positive territory in July, the level of optimism dropped to its lowest since February 2020.

Companies hold expectations for business expansion plans, improved market conditions, new product launches, promotional activities, and infrastructure projects, but some companies have adopted a more cautious attitude toward the economic outlook.