China’s Services Sector Loses Steam as December PMI Slips to Six-Month Low

The Slowdown Begins at Noon

Shanghai—At precisely 11:58 a.m. on the last trading day of 2023, the Caixin Services PMI flashed across terminals on the 88th floor of the Lujiazui exchange: 50.4. A whisper, not a shout. The lowest reading since June. Within minutes, chat rooms from Shenzhen to Singapore lit up with the same three-word verdict: momentum is gone.

What the Numbers Say

The private survey, watched closer than the official gauge by offshore investors, showed new orders expanding at the weakest pace in half a year. Employment sub-indexes dipped into contraction for the first time since September, while input-cost inflation quickened to a four-month high. Translation: firms are paying more to keep the lights on, but customers are thinning out.

The Fine Print

• Business expectations slipped to 58.2 from 60.7—still optimistic, but the steepest one-month drop on record.
• Export demand shrank for a third straight month, underscoring fragile appetite from Europe and the U.S.
• Average selling prices rose at the fastest clip since August, pressuring margins across hospitality and logistics.

“We’re seeing a classic late-cycle pattern: costs sticky, pricing power fading, and order books padded with shorter-dated contracts,” said Wang Mei, chief China economist at BNP Paribas in Hong Kong.

Street-Level Signals

Walk down Shanghai’s Yunnan Road food lane and the data turns human. Zhao Hui, who has grilled lamb skewers here for 14 years, reduced night-shift staff to four from seven. “Dinner crowds still come, but office workers aren’t staying late anymore,” he said, fanning coals that once drew queues around the block. A few storefronts away, a boutique hot-pot chain has replaced printed menus with QR codes to save paper—“tiny cuts that add up,” manager Liu Ting shrugged.

Policy Crosswinds

Beijing’s pivot from zero-COVID a year ago juiced a violent rebound in travel and dining. Yet the hangover has arrived faster than many anticipated. The People’s Bank of China has kept its benchmark loan prime rate unchanged since August, arguing that targeted tools—like relending for small business—pack more punch than broad rate cuts. Meanwhile, fiscal stimulus has favored infrastructure over consumption, leaving service providers to fend for themselves.

Global Ripple Effects

China’s services pullback matters beyond its borders. German machinery exporters, Australian wine shippers, and Korean tour operators all benchmark Chinese demand curves. With the eurozone flirting with recession and U.S. consumers trimming discretionary spend, a second consecutive quarterly contraction in China’s tertiary sector could shave 0.3 percentage points off global GDP growth, Oxford Economics calculates.

What to Watch Next

Investors will sift through the official NBS non-manufacturing PMI due January 3 for corroboration. A sub-50 print there—paired with today’s Caixin read—would mark the first synchronized services slump since November 2022. Markets have already priced in a 10-basis-point trim to China’s five-year loan prime rate by March, but traders warn that without a durable income rebound, cheaper credit is “pushing on a string,” as one Singapore-based rates strategist put it.

Bottom Line

China’s post-pandemic party in services is winding down. Whether policy makers can engineer a soft landing—or if the sector skids into a sharper slowdown—will shape not just domestic job prospects, but the velocity of global growth in 2024.