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Service sector expansion

China gross domestic product by sector, 2012-2015

Source: Bloomberg

 

Industrial and investment growth has slowed more rapidly than China’s overall economy as economic rebalancing has continued. But Greg Kuhnert, Asia portfolio manager in the 4Factor team, believes that services are on the up. “The consumer and services sectors remain in good health,” he says. “The services sector has been the largest contributor to growth this year.” But while China’s services PMI reached an 11-month high in July, it has since stagnated. While the services PMI still shows expansion, it is not yet clear whether services can carry the economy forwards. Kuhnert says that boosting consumption and services “is behind a number of policy announcements to boost growth”, he cites reductions in mortgage down-payment restrictions and interest rates to increase disposable income, as well as tax cuts on purchases of compact cars. 

 

Keeping an eye on services’ continuing growth both as a percentage of GDP and absolute activity will indicate whether the services sector is getting strong enough to power China’s economy.

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