In June 2025, the Caixin/S&P PMI for services in China was 50.6. This is the slowest growth in nine months, down from 51.1. The drop is due to weaker demand and a significant fall in export orders, the biggest drop since December 2022. Service providers took a cautious approach to hiring, resulting in the fastest increase in backlogs in a year. Output prices dropped at their fastest rate in over three years due to strong competition and lower pricing power. Despite this, business sentiment remained positive, with expectations largely the same as in May.

Composite PMI Rise

The composite PMI increased to 51.3, thanks to a stronger manufacturing sector, up from 49.6. Earlier, the official PMI data for June 2025 showed the services figure at 50.5 and a composite of 50.7. The Caixin manufacturing PMI was 50.4, exceeding the expected 49.0 and up from 48.3 the previous month. The Caixin/S&P services PMI reading of 50.6 is just above the threshold, indicating that activity is still expanding, albeit barely. This slowdown coincides with signs that domestic demand has weakened. Export orders are also under pressure, declining sharply since late 2022, suggesting global demand for Chinese services has declined. Notably, there’s an increase in backlogs despite slower hiring, signaling a potential risk of supply delays if this trend continues. Zhou’s firm noted a notable drop in output prices, the largest in over three years. This isn’t due to falling input costs but rather because firms struggle to pass costs onto customers in a price-sensitive market. Competition is tight, and service providers feel the pressure. If providers are forced to lower prices while costs stay high, profit margins may shrink.

Future Expectations Holding Steady

Despite the challenges, the outlook remains surprisingly steady. Expectations for the future are not turning negative, though there is little optimism about improvement. Sentiment remains cautious, suggesting optimism depends on policy support or better demand trends that have not materialized yet. In contrast, the manufacturing situation has improved slightly, with the composite index showing stronger manufacturing activity. Chen’s team reported a manufacturing PMI increase to 50.4 from 48.3, which is a significant change. With the composite index rising to 51.3, it’s clear that industrial output is currently more influential than domestic services. We need to adjust our expectations about where growth is coming from. Services are not the reliable driver they once were in the short term. The increase in factory output hides underperformance in domestic sectors. If businesses maintain low hiring and resort to price cuts, the short-term data will likely reflect ongoing stress—not a complete crisis but certainly instability. The focus should be on the differences within the composite index. Consumers seem cautious, while corporations report steady volumes. If factory numbers continue to rise but the service sector stagnates, it will hinder overall growth. This imbalance will become apparent. Instead of waiting for any single data point, the best strategy is to respond to changes in overall activity. Pay attention to where improvements occur—not just the overall numbers. In the coming weeks, signals from the manufacturing sector may provide clearer insights into actual demand trends than any headline figure. Create your live VT Markets account and start trading now.

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