The data adds to the picture of a Chinese economy still growing but struggling with weak pricing power, which helps explain why authorities are leaning on targeted support such as this week’s expanded buyback lending. Falling selling prices alongside rising costs point to margin pressure for listed service companies, which may limit any equity bounce from the support measures. Firms specifically cited oil among rising input costs, a sign that higher energy prices linked to the Middle East conflict are filtering into China’s economy even as companies cannot pass them on. For the Australian dollar and commodities, the slightly firmer manufacturing output is a modest offset, but the softer services reading gives little reason to expect a stronger demand impulse from China.

— Chinese service firms are still finding customers and hiring staff, but they are cutting prices to do it while their own costs climb, a squeeze that shows up in profits before it shows up in growth.

Summary:

• The RatingDog China General Services PMI fell to 50.8 in October from 51.6, the slowest growth in three months
• New business rose at a solid pace, and new export orders grew for a sixth month
• Employment rose for a sixth month at a faster pace, and backlogs fell for the first time in a year, helped by AI efficiencies
• Selling prices fell for a second month, while input costs rose at the fastest pace in five months on labour, raw material and oil costs
• Business confidence slipped to a three-month low
• The composite PMI fell to 52.0 from 52.4, despite faster manufacturing output growth

China’s services sector kept growing in October but at a slower pace, a private survey showed on Wednesday. Firms cut prices to win business even though their own costs rose at the fastest rate in five months.

The RatingDog China General Services PMI, compiled by S&P Global, fell to 50.8 in October from 51.6 in September. The reading stayed above the 50 mark that separates expansion from contraction, but it showed the slowest growth in activity in three months. Firms pointed to operational constraints as a factor behind the slowdown.

Demand held up better than the headline suggests. New business continued to rise at a solid pace, little changed from September, extending a run of growth that began in January 2023. Firms credited wider customer bases and successful promotional efforts. New export orders rose for a sixth straight month, the longest stretch since 2024, though growth eased and was marginal.

Hiring picked up. Employment rose for a sixth month, and at a faster pace than in September, as firms took on both full- and part-time staff. The extra workers, along with what firms described as efficiency gains from AI, helped reduce backlogs of work for the first time in a year.

Pricing remains the main concern. Average selling prices fell for a second month as firms discounted to cope with fierce competition, although the pace of discounting eased from September. At the same time, input cost inflation hit a five-month high, driven by higher labour, raw material and oil costs, with some firms also citing social security payments. That combination points to pressure on profit margins.

Business confidence stayed positive but slipped to a three-month low, as firms worried about rising costs and competition.

A separate composite index, which combines manufacturing and services, fell to 52.0 from 52.4, the slowest rise in private sector output in three months. Faster growth in manufacturing output was not enough to offset the softer services expansion.

RatingDog founder Yao Yu said that steady new business and stronger hiring underpinned growth at the start of the fourth quarter, but that renewed discounting and rising costs were weighing on profitability. 

This article was written by Eamonn Sheridan at investinglive.com.