China's service sector grows in May, but export orders negatively affected by US tariffs

The Service Sector Purchasing Managers' Index (PMI) released by Caixin increased to 51.1 in May, up from 50.7 points in April. The index thus remained above the threshold level of 50, which separates growth from contraction, for consecutive months. The survey results showed that domestic demand in China's service sector remained strong, but risks from external demand increased.

In particular, new export orders continued to weaken. Analysts point to the re-escalation of trade tensions between the US and China as one of the main reasons for this situation. US President Donald Trump stated last Wednesday that it is “extremely difficult” to reach a trade deal with Chinese President Xi Jinping, deepening diplomatic uncertainty between the two countries.

Caixin data indicate that despite the growth in the service sector, increasing trade pressures may have negative effects on the overall balance of the Chinese economy. If the uncertainties on the trade front continue, it is assessed that there may be a further slowdown in the export leg of the service sector.