China’s services sector grew at its slowest pace in six months in December, according to a private-sector survey. The RatingDog China General Services PMI, compiled by S&P Global, dipped to 52.0 from 51.1 in November. Although still above the 50-point mark that separates expansion from contraction, it was the weakest reading since June.
New business growth also slowed to a six-month low. Meanwhile, new export orders slipped back into contraction after briefly expanding in November. The survey attributed this decline largely to falling tourist arrivals, which hurt travel-related and hospitality services.
Despite the softening activity, business sentiment brightened significantly. The expectations sub-index rose to a nine-month high as firms looked ahead to 2026 with optimism. Many cited anticipated improvements in market conditions and active expansion plans as reasons for their confidence.
“The services sector ended 2025 with a ‘modest growth, high expectations’ profile,” said Yao Yu, founder of RatingDog. He added that persistent job cuts and unstable foreign demand remain major headwinds. Indeed, companies reduced staffing for the fifth straight month—cutting both full-time and part-time roles—which led to a slight buildup in backlogs.
China’s broader economy continues to face structural challenges. A prolonged property slump and deflationary pressures have weighed on momentum, even as the country remains on track to meet its roughly 5% annual growth target. To counter these issues, the government has intensified efforts to curb industrial overcapacity and end destructive price wars among firms.
At a key Communist Party meeting last month, leaders pledged a “proactive” fiscal policy in 2026. The goal is to boost both consumption and investment to sustain high growth. Such support may help explain the strong forward-looking sentiment in the services survey.
Cost pressures also persisted. Input prices rose for the tenth consecutive month, driven by higher raw material and labor expenses. Yet firms continued to lower selling prices, reflecting fierce competition and limited pricing power. This squeeze on margins could constrain hiring and investment if it continues.
On a broader note, the Composite Output Index—which blends manufacturing and services—improved slightly to 51.3 in December from 51.2 in November. This suggests the overall private sector remains in expansion, albeit at a modest pace.
In summary, the China services sector closed 2025 on a cautious note. While activity cooled, optimism for 2026 is rising. If fiscal stimulus delivers and external demand stabilizes, the sector could rebound—but only if deflation and employment trends improve.
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