China RatingDog Services PMI Eases, Margin Pressures Build

China’s services slowdown reignites policy easing bets as traders brace for ripple effects across Asia.

On Wednesday, November 5, traders turned their focus to the RatingDog China General Services PMI. The Services PMI fell from 52.9 in September to 52.6 in October, signaling a loss of economic momentum.

The October survey revealed several key developments:

• The rate of new order growth accelerated in October, driven by domestic demand.
• Foreign demand dropped early in the fourth quarter amid uncertainties about the global trade outlook.
• Service providers cut staffing levels amid cost concerns.
• Average input prices increased at the fastest pace in a year, driven by wage costs and higher raw material prices.
• However, firms cut output prices as competition intensified, potentially intensifying margin squeezes.

The drop in Services and the Manufacturing PMIs sent the RatingDog China General Composite PMI down from 52.5 in September to 51.8 in October.

There were common themes across the private sector, potentially raising the prospects of policy support from Beijing. These included margin squeezes and job cuts.

Expert Views on China’s Services Sector

Yao Yu, founder of RatingDog, commented:

“In terms of sub-components, demand for services remained in expansion in October, though performance diverged. Specifically, affected by increased instability in the global trade environment, new export business fell noticeably into contractionary territory. The domestic market saw some improvement in demand, and total new orders remained in expansion, with the pace of growth quickening.”

Underscoring the significance of price pressures and profit margins, Yao Yu added:

“When it comes to price indicators, input prices rose for the eighth consecutive month, with the reading marking the highest level since October 2024. Output prices fell back into contractionary territory this month. This volatility was due to diverging pricing strategies among firms: some raised prices to pass on cost pressures, while others offered discounts to secure sales. Profit margins in the services sector remained under pressure.”

The Market Reaction to the Services PMI

Financial markets responded swiftly to the PMI release, reflecting concerns over China’s fragile economic outlook.

In response to the October PMI report, the Hang Seng Index briefly fell to a low of 25,596 before rising to a post-report high of 25,712.

On Wednesday, November 5, the Index was down 1.09% to 25,670 for the morning session. Price pressures and a weakening labor market weighed on sentiment.

In the forex market, the AUD/USD had a mixed reaction to the PMI data, rising to a post-report high of $0.64718 before falling to a low of $0.64663 over concerns about demand. On November 5, the AUD/USD was trading 0.32% lower at $0.64680.

The Australian dollar remains sensitive to Chinese economic data, as well as US trade policy.

What’s Next?

Last week, President Trump and Chinese President Xi agreed to a one-year trade truce. While lower tariffs could bolster the Chinese economy, economists expect more stimulus from Beijing to boost domestic consumption.

The October PMI numbers revealed continued margin squeezes, which are affecting the labor market. Rising unemployment would likely curb consumer spending, challenging Beijing’s 5% GDP growth target.

Looking ahead, October’s trade data, due out Friday, November 7, will give further insights into the demand environment. Slowing imports and exports could fuel speculation about a meaningful stimulus package from Beijing. On the other hand, strong demand could enable Beijing to delay policy measures.

November could prove pivotal for Mainland China’s equity markets. Upbeat data and policy support could send the CSI 300 and the Shanghai Composite to new 2025 highs. Conversely, weaker data and the absence of policy support could derail the 2025 rally.

The CSI 300 has gained 16.43% year-to-date, while the Shanghai Composite Index has risen 17.54%. However, the Hang Seng Index leads the gains, surging 27.78%. Policy support would likely counter weak data, setting up a bullish outlook.

Friday’s trade figures could decide whether Beijing steps in — or steps back.

Discover strategies to navigate this week’s market trends here.