China: services grow faster and hire more, better than expected

An index measuring how well service businesses in China —restaurants, stores, transportation, tourism, banks, technology— are doing rose to 51.4 points in August, up from 50.4 in July and above the 50.6 that analysts expected, according to the RatingDog (formerly Caixin) survey published today, Thursday. Any number above 50 means that sector is growing; below 50 means it is shrinking. So the jump to 51.4 confirms that service businesses in China are not only continuing to grow but have accelerated the pace, driven mainly by increased spending by people within the country (domestic demand), not so much by foreign sales. The most striking aspect is employment: service companies hired for the fourth consecutive month, and they did so at the fastest pace in three years. This matters because the service sector is, by far, the largest job creator in the Chinese economy —many more than factories— so more hiring there translates directly into more people with income to spend. This contrasts with what has been seen in Chinese factories, which have had a weaker outlook in recent months. In other words: while Chinese factories struggle, services —the largest part of the economy— are sustaining the country's growth. For an investor or someone who just wants to understand the landscape, this matters because China is the second-largest economy in the world and purchases raw materials and products from half the planet, including Latin America. If its internal economy remains strong thanks to the consumption of the Chinese themselves, that reduces the risk of China 'pulling down' the rest of the world this year. It is also a positive signal for global consumer, tourism, and technology companies with business there: a more active Chinese consumer is good news for their sales in that country. The only weak point of the report: new orders for export services —travel abroad, financial and technological services that China sells outside— grew slower than in July, a sign that demand from outside China remains lukewarm.