(Bloomberg) -- China’s service activity expanded at the fastest pace since July, a private survey showed, a sign that consumer demand may be on the mend after Beijing moved to shore up growth with a barrage of stimulus measures.
The Caixin China services purchasing managers’ index rose to 52 in October from 50.3 the previous month, the biggest jump since March last year, Caixin and S&P Global said Tuesday. The pace of expansion exceeded a median forecast of 50.5 by economists.
“Supply and demand continued to grow as the market improved,” Wang Zhe, senior economist at Caixin Insight Group, said in a statement. “Businesses expressed confidence in macroeconomic conditions in the near term.”
China’s benchmark CSI 300 index rose as much as 2%.
The upbeat reading matched an official survey published last week showing the services sector improved in the month following Beijing’s largest effort to boost the economy since the pandemic. Policymakers unveiled measures in late September including interest-rate cuts and support for stock and property markets.
Investors now expect China’s top legislators to approve a fiscal package on Friday, just days after a US presidential election. They will closely watch for any measures to boost domestic demand as deflationary pressures have persisted despite a tentative recovery in the manufacturing and housing sectors shown in October data.
“The better sentiment probably reflects some recovery in retail activities supported by the replacement initiative,” said Michelle Lam, Greater China economist at Societe Generale SA, referring to Beijing’s 300 billion yuan ($41 billion) initiative to subsidize purchases of equipment, appliances and cars. “The bottoming of the stock market and better property sales in first-tier cities also helped.”
The Caixin report also showed that business confidence rose to the highest since May, citing anecdotal evidence that firms were more hopeful about the economic climate. New business expansion picked up speed for the first time in four months.
Taken together, the indicators suggest China’s economy got off to a better start in the final quarter after expanding the least since earlier 2023 in the period ended September. Most economists forecast China to reach its expansion target of around 5% for this year, although a deflation streak threatens to hurt long-term growth by causing a cycle of declining spending by households, shrinking business revenues and job losses.
China’s Premier Li Qiang on Tuesday expressed confidence in achieving the growth target. Speaking at the opening of the China International Import Expo in Shanghai, he said the Chinese government has the ability to sustain the recovery and has “ample space” for fiscal and monetary policy.
The day before, China’s lawmakers reviewed a proposal to transfer some off-balance-sheet debt of local governments to their official accounts, paving the way for the first mid-year increase in the borrowing limit since 2015.
While the debt swap may not satisfy market demands for more central government borrowing and consumer stimulus, it would free up cash for local governments to spend on various needs, such as employee salaries and construction projects.
Economists are divided on whether additional fiscal measures beyond the debt swap will be announced at the end of the weeklong session, with some suggesting that Beijing needs to manage expectations more carefully to mitigate the potential impact of the upcoming US presidential election on Chinese asset prices.
The tight leadership race injects uncertainty over China’s growth, which this year has been powered by brisk exports. A reelection of Trump, who has threatened to impose 60% tariffs on all Chinese products, could hurt a rare bright spot in the economy.
China is scheduled to release its trade figures for October on Thursday, forecast by economists to show exports growth picked up after falling in September to the slowest pace in five months.
(Updates throughout.)
©2024 Bloomberg L.P.
