China's service sector saw its strongest growth in seven months in December, driven by increased domestic demand, but concerns over trade risks and external pressures dampened optimism.
The Caixin/S&P Global services PMI climbed to 52.2, up from 51.5 in November, surpassing forecasts (51.7) and marking the sharpest expansion since May. New business inflows grew at the fastest rate in five months, although export orders declined for the first time since August 2023.
Despite higher activity, employment slipped as businesses faced rising costs and capacity pressures. Input inflation accelerated, prompting firms to pass on costs to clients for the first time since June.
The Caixin services PMI mirrored this growth, reflecting strong domestic demand but highlighting vulnerabilities in external markets. The composite output index, however, eased to 51.4 from 52.3 in November, reflecting weaker manufacturing performance and pointing to broader economic headwinds.
Rising competition and fears of increased U.S. tariffs under the incoming Trump administration weighed on business confidence. A business confidence reading remained positive but dipped to the second-lowest since March 2020. While government stimulus measures have supported recovery, analysts warn that the external environment could become more challenging, necessitating further policy intervention.