Consumer spending in China has slowed. Photo: iStock
Consumer spending in China has picked up. Photo: iStock

Data can often paint a distorted picture, particularly in the short-term. But the numbers coming out of China this week about the state of the world’s second-largest economy have been in coated in gray.

On Friday, the independent Caixin China General Services Business Activity Index showed expansion in the much-vaunted services industries sector slowed in July.

The dip was substantial with business confidence at its weakest level in almost three years.

Overall figures showed a drop to 52.8 from 53.9 in June, which was the lowest reading since March. Still, it was above the 50-marker, which separates expansion from contraction.

Headline statistics

Peeling away the headline statistics, the sub-index for business “optimism” in the next 12 months fell to its lowest level since the end of 2015. The gauge of new business from service providers also dropped to levels not seen since nearly three years ago.

“The sub-index of new business remained in expansionary territory, but fell significantly – a clear sign that demand for services had worsened [sic] … while indicating that confidence had been shaken,” Zhengsheng Zhong, a director of Macroeconomic Analysis at CEBM Group, said in a statement.

This latest data is more evidence that China’s economy is cooling, buffeted by slowing factory activity and rising trade tensions with the United States.

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It also comes at a time when Beijing is realigning the economy from low-cost manufacturing to technology-fueled growth through the “Made in China 2025” policy, as well as an expanding service sector.

Yet official numbers, released by National Bureau of Statistics, or NBS, earlier this week, have added a dash of color to the picture, the country’s leading economic body pointed out.

“In the first six months, consumption retained growth momentum and has become a key element of the nation’s rebalancing act,” Liu Yunan, a senior official with the National Development and Reform Commission, said on Thursday.

Trade conflict

According to the NBS, consumption accounted for 78.5% of economic growth in the first half, which was a rise of 14% compared with the same period last year. These are impressive figures.

Unfortunately, the trade conflict is still lurking in the background and it could force up prices on a range of products in the months ahead.

“Retail sales growth has been dragged down by some seasonal factors,” Liu said. “[But] despite external challenges [such as the trade dispute with the US], spending is expected to see a rebound with downward dips remaining under control.”

Control appears to be the ‘buzzword’ coming out of Beijing at the moment. Sifting through the next wave of stats will go a long way to clarifying the situation.

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