China’s services activity rose to its highest level in three months in March, signaling an encouraging trend for the nation’s economic growth. According to a private sector survey released on Thursday, the Caixin/S&P Global Services Purchasing Managers’ Index (PMI) climbed to 51.9 from 51.4 in February, the strongest reading since December. The increase suggests a steady expansion in business activity and new orders, reinforcing optimism about China’s post-pandemic recovery.
The findings align with the official survey, which reported that the services PMI edged up to 50.3 from 50.0, indicating that the sector is maintaining its growth trajectory.
Encouraged by these positive indicators, Standard Chartered revised its first-quarter GDP growth forecast for China from 4.8% to 5.2% year-on-year. The bank cited stronger-than-expected economic activity in January and February as additional reasons for its upward revision.
Potential Threats from U.S. Tariffs
Despite the positive momentum, China’s economy faces fresh challenges from external pressures. U.S. President Donald Trump announced on Wednesday that his administration would impose a 10% baseline tariff on all U.S. imports, with even higher duties on dozens of countries.
Chinese imports, in particular, will be subject to a 34% tariff—a sharp increase from the previous 20%—bringing the total tariff burden to 54%. This move could significantly impact China’s export-driven industries, dampen business confidence, and create uncertainty in manufacturing and hiring.
Given that approximately 48% of China’s workforce was employed in the services sector by 2023, and the industry contributed 56.7% of total GDP last year, any slowdown in manufacturing could ripple through the broader economy. A weakened industrial sector could lead to reduced consumer confidence, job uncertainties, and slower income growth.
Policy Measures and Economic Outlook
Economists warn that China must act swiftly to mitigate risks arising from an increasingly complex global trade environment. Wang Zhe, an economist at Caixin Insight Group, emphasized the need for decisive macroeconomic policies:
“In 2025, as the external environment becomes increasingly severe and complex, China's macroeconomic policies need to be more proactive and decisive, with measures implemented as soon as possible to support a sustained economic recovery.”
The Caixin services survey highlighted that new business growth reached its strongest level since December, driven mainly by robust domestic demand. However, new export business remained stagnant in March, underscoring the challenge of maintaining China’s competitive edge in global trade.
Business sentiment in the services sector remained optimistic, with firms anticipating supportive domestic policies and continued business development to drive sales and output over the next 12 months.
Challenges in Employment and Pricing
Despite positive growth indicators, the survey also flagged some areas of concern. Employment in the services sector declined at the fastest pace in 11 months, as companies reported both resignations and redundancies. Cost concerns were cited as a major reason for job cuts, suggesting that businesses are exercising caution amid economic uncertainties.
Additionally, while input prices rose in March following a slight decline in February, firms opted to absorb cost increases rather than pass them on to consumers. Output charges fell at their fastest rate in six months, indicating that businesses are prioritizing affordability to sustain demand.
Call for More Support to Boost Consumption
Economic professors from Peking University have urged policymakers to ramp up support for the services sector, arguing that the existing consumer goods trade-in subsidy scheme is too limited. Expanding such incentives could stimulate consumption, offset economic pressures, and further strengthen China’s domestic demand-driven growth model.
As China navigates both internal recovery efforts and external trade headwinds, the coming months will be critical in determining the long-term sustainability of its economic resurgence.