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Caixin China services index recovers; composite index edges up in September

China's services sector activity growth rebounded to a three-month high as the seasonally adjusted Caixin China General Services Business Activity Index rose to 53.1 in September from 51.5 in August, data from Caixin and IHS Markit showed.

While business activity at services firms improved, production in manufacturing rose at its weakest since October 2017. As a result, the Caixin China Composite Purchasing Managers' Index (which covers both manufacturing and services) inched up to 52.1 in September from 52.0 in August, indicating lackluster activity growth compared to that seen earlier in 2018, Caixin and IHS Markit said.

Services firms posted the fastest increase in new orders since June but manufacturers saw a broad stagnation in new business, which led to composite new order inflows expanding at only a slightly faster pace than August's 26-month low.

"What we should be wary of is that overall employment contracted in September, with the sub-index hitting its lowest level since August 2016," said Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group.

September marked the first workforce reduction in the service sector in more than two years. Firms attributed the lower employment to restructuring plans and non-replacement of voluntary leavers.

Services firms grappled with the second-steepest rate of input price inflation since May 2012 on higher prices for fuel and raw materials, and higher staffing costs. Manufacturers also reported a solid rise in input costs. Despite the rise in input costs, most services firms maintained their output charges to stay competitive. "Overall, prices charged for Chinese goods and services increased at a marginal pace that was the slowest recorded since June 2017."

Chinese companies were generally optimistic that output would rise over the next 12 months, but the degree of positive sentiment among manufacturers slid to a 9-month low amid environment policy and global trade concerns while confidence in the service sector also dipped. U.S. tariffs on $200 billion of Chinese goods took effect Sept. 24, prompting China to retaliate with its own measures.