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Caixin China services index slips; composite index at 5-month low in August

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Caixin China services index slips; composite index at 5-month low in August

China's services sector activity growth weakened for the second straight month as the seasonally adjusted Caixin China General Services Business Activity Index dropped to 51.5 in August from 52.8 in July, data from Caixin and IHS Markit showed.

Business activity at services firms rose at the slowest rate since October 2017, dragging the Caixin China Composite Purchasing Managers' Index further down to 52.0 in August from 52.3 in July, despite manufacturing production rising at the quickest pace since January. The composite reading, while still above the 50-point mark that signals expansion, was the weakest in five months.

Services companies saw new business expansion pick up in August from the 31-month low seen in July. Manufacturers, meanwhile, recorded a marginal increase in new order volumes that was the weakest since May 2017, leading to the slowest growth in new orders at the composite level in 26 months.

Services firms continued to expand their staff numbers while manufacturers shed jobs at the fastest pace in more than a year in August, resulting in composite employment falling for the third straight month.

Services companies registered the quickest rise in operating expenses in six months in August due to higher costs of fuel, raw materials and staff, as manufacturers recorded the steepest rate of inflation. Amid rising input costs, Chinese firms charged higher prices for services and goods, with composite output charges rising for the 15th consecutive month.

"Inflationary pressures were pronounced as increases in both input prices and output prices accelerated. The future output sub-index went up after falling in August, which was likely boosted by the fine-tuning of macro policies," said Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group.

"August's PMI readings indicated that the effects of expansionary credit policy and active fiscal policy are yet to kick in. Signs of stagnation emerged as upward pressure on prices remained even though demand weakened at a faster rate."

Overall business sentiment among Chinese firms for the next 12 months improved slightly from July, although optimism among services companies remained below the long-run series average, while the outlook of goods producers remained close to the six-month low recorded in June.