The services sector in China faced a tough time in April, recording its weakest pace of expansion in seven months, according to the newest Caixin/S&P Global Services PMI. The index slipped to 50.7 from 51.9 in March, being just a point above the growth-vs-contraction dividing line.
This slowdown, chiefly due to declining new orders and worsened confidence, has been extolled by increased anxiety around the U.S.-China trade war, chiefly the ripple effects of President Donald Trump’s tariff hikes.
🧾 Sluggish Growth Amid Tariff Uncertainty
While China’s first-quarter economic performance exceeded expectations, underlying fragility is now being exposed in the service sector. The Caixin PMI, which focuses more on smaller, export-oriented firms, showed that new business growth has cooled to its lowest level since December 2022.
Some firms are reporting that tariff disruptions on goods trade are spilling into services, particularly in logistics, wholesale, and tourism-linked segments.
“With a cloud over the market outlook, both business and consumer confidence are subdued, making it harder to boost domestic demand,” said Wang Zhe, Senior Economist at Caixin Insight Group.
🚩 Warning Signs for Policymakers
This comes as nearly half of China’s workforce is employed in services — a sector that contributed 56.7% of GDP in 2023. The pressure is growing for Beijing to cushion the blow.
The ruling Communist Party’s Politburo has already pledged to support affected firms and brace for “worst-case scenarios” as the full force of triple-digit U.S. tariffs becomes apparent.
Meanwhile, business sentiment has fallen to its lowest since February 2020, the early pandemic period. Firms are beginning to cut jobs for a second month in a row, citing the need to curb costs as they offer discounted pricing to lure reluctant consumers — even as input costs rise.
🔍 Bigger Picture: Composite PMI Also Dips
China’s broader economic indicators are following a similar pattern. The Caixin China Composite PMI, which includes both manufacturing and services, dropped to 51.1 in April from 51.8 in March.
According to Morgan Stanley, the economic impact of tariffs could drag second-quarter GDP growth down by a full percentage point — putting pressure on officials to respond with fresh stimulus.
