China’s services sector is struggling under the pressure of U.S. tariffs, with new data indicating a significant slowdown in April. This is yet another indication that President Trump’s trade war is affecting Beijing across the board.
The Caixin China services purchasing managers’ index (PMI), a crucial measure of the services industry’s performance, fell to its lowest level in seven months, barely remaining above the line that distinguishes growth from contraction, as reported by Bloomberg. A sub-index that forecasts future economic activity has also dropped to its second-lowest level since this data collection began.
This sub-index was only lower once before, in February 2020, during the peak of the COVID-19 pandemic.
According to Wang Zhe, a senior economist at Caixin Insight Group, service providers are worried about the impact of U.S. tariffs. He noted that uncertainty is dampening both business and consumer confidence, making it more challenging to stimulate domestic demand. The ongoing tariff dispute between China and the U.S. will likely have noticeable effects in the second and third quarters.
The troubles in China’s services sector reflect a wider decline affecting critical areas of the economy. Major financial institutions are facing serious setbacks, with the largest six banks reporting combined losses exceeding $1 billion for the first quarter. The construction sector also underperformed in April, but manufacturing has endured the most severe hit. New export orders have plummeted to their lowest levels since December 2022, and cargo shipments to the U.S. have dropped by an alarming 60%.
With over 16 million Chinese workers reliant on export-driven manufacturing, the repercussions are spreading quickly. There have been reports of thousands of workers walking off job sites and protesting unpaid wages, with some even expressing suicidal thoughts.
Recent data confirms that the trade war is negatively impacting economic activity in China, as economist Zichun Huang noted.
While Chinese officials maintain that they’re on target for a 5% GDP growth, Bloomberg analysts predict actual growth will only reach about 4.2% this year. The reality could be even grimmer when considering the full impact of the tariffs on the Chinese economy.
Chinese authorities have also ceased publishing various key economic indicators in recent years, such as data on land sales, unemployment, and foreign investment. An analysis by the Wall Street Journal found that many previously reported metrics have quietly vanished, often without any explanation.
Even prior to the tariffs’ implementation, renowned Chinese economist Gao Shanwen publicly stated that China’s economic growth figures were likely inflated. Following this statement, CCP General Secretary and President Xi Jinping ordered disciplinary action against him, and he has not been heard from since.
