China’s services sector activity grew at a faster pace in May, according to a private survey released on June 5, 2025. The increase occurred despite weakened export demand amid ongoing uncertainty over US tariffs.

The Caixin/S&P Global services purchasing managers’ index (PMI) rose to 51.1 in May, up from 50.7 in April.

This index remains above the 50-point threshold, which indicates growth over contraction. It reflects the performance of smaller, export-oriented firms, particularly on China’s east coast.

This reading aligns with the official PMI, which showed a slight increase in services activity to 50.2 in May, compared to 50.1 in April.

However, new export orders in both the manufacturing and services sectors remained sluggish, highlighting ongoing external challenges.

🔗 Source: Reuters

🧠 Food for thought

1️⃣ Tariffs create asymmetric impacts across economies

Historical data shows tariffs create complex economic ripple effects beyond simple trade balances, affecting specific regions and sectors differently.

Previous U.S. tariff increases on Chinese goods in 2019 resulted in an annual cost of $419 for typical U.S. households, including both direct tax burden and economic inefficiencies 1.

Meanwhile, Chinese retaliatory tariffs disproportionately impacted agricultural-dependent U.S. counties, with car sales declining 3.8% to 5.5% in these regions, indicating broader consumption impacts 2.

This pattern explains why businesses remain cautious despite the temporary tariff reduction agreement, as sector-specific vulnerabilities create lingering uncertainty.

2️⃣ China’s structural shift from export-led to consumption-driven growth remains challenging

The modest services growth shown in the latest PMI data reflects China’s ongoing struggle to stimulate domestic consumption despite significant policy efforts.

According to Deloitte’s 2025 economic outlook, Chinese policymakers are actively prioritizing domestic demand revitalization amid concerns about “Japanification” due to inadequate demand 3.

Despite achieving its 5% GDP growth target in 2024, China’s consumption remains weak, with retail sales growing by just 5.1% in April 2025, indicating persistent challenges in boosting domestic spending 4.