China’s Services Growth Hits 7-Month Low Amid U.S. Tariff Concerns

China’s services sector expanded at its slowest pace in seven months in April, according to the Caixin/S&P Global services purchasing managers’ index (PMI), which dropped to 50.7 from March’s 51.9. This marks the weakest reading since September and signals muted expansion, with the 50-mark separating growth from contraction.

The slowdown aligns with the official PMI reading of 50.1, down from 50.3 in March. The Caixin index, often seen as a better gauge of smaller, export-driven firms, reflected broader uncertainty driven by escalating U.S. tariffs under President Donald Trump.

Despite stronger-than-expected Q1 growth fueled by government stimulus, China’s economy faces mounting deflation risks, a prolonged property market downturn, and external trade pressure. The services sector, which employed 48% of China’s workforce and contributed 56.7% of GDP in 2023, is increasingly vulnerable to external shocks.

April’s survey revealed that new business growth slowed to its weakest level since December 2022, although export orders slightly improved due to a rebound in tourism. Service providers cited tariff-related trade disruptions, subdued business sentiment, and waning consumer confidence.

Employment in the sector fell for the second month in a row as firms aimed to cut costs, leading to increased backlogs. Companies also reduced prices to attract customers, despite rising input costs, pressuring margins further.

The Caixin China General Composite PMI, covering both manufacturing and services, slipped to 51.1 from 51.8 in March.

Economists at Morgan Stanley warned that U.S. tariffs could shave up to one percentage point off second-quarter GDP growth. They expect Beijing to implement cautious stimulus, focusing on investment in emerging industries and urban renewal, while gradually pivoting toward boosting domestic consumption.

Policymakers have been urged to act swiftly as uncertainty looms.