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Home News Macro

China Services PMI Hits 15-Month High, But Profit Squeeze Looms

by Team Lumida
September 3, 2025
in Macro
Reading Time: 3 mins read
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Premium Chinese Brands: Why Investors Are Losing Faith
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Key Takeaways

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  • China’s RatingDog (Caixin) Services PMI rose to 53.0 in August, its fastest pace of expansion in over a year, driven by a solid rise in new domestic and export orders.
  • The upbeat data points to resilient momentum in the services sector, aligning with recent official government PMI figures.
  • However, a significant red flag emerged: companies are facing mounting cost pressures from higher wages and raw materials but are cutting their own prices to compete.
  • This is leading to a severe squeeze on corporate profits and is causing firms to trim headcount, suggesting the recovery is “imbalanced” and potentially unsustainable.

What Happened?
A private survey of China’s services sector showed a notable acceleration in August, with the headline PMI reaching its highest level since May 2024. The growth was underpinned by the strongest rise in new business in over a year, with both domestic and foreign demand improving. Business confidence for the year ahead remained strong and steady.

Why It Matters?
While the headline activity number is a positive signal for China’s economic recovery, the underlying details paint a much weaker picture. The inability of service providers to pass on rising costs is a classic sign of intense competition and potentially weak underlying consumer power. This margin compression directly threatens corporate profitability and is already leading to job cuts despite rising orders. It suggests the services-led recovery may be fragile and not translating into a healthy, broad-based economic expansion.

What’s Next?
The key indicator to watch is pricing power. For the recovery to be sustainable, service companies must be able to pass on their higher costs to customers. Investors should closely monitor future PMI reports, specifically the input cost and output price sub-indexes, for any signs of this margin squeeze easing. Corporate earnings reports from the services sector will also be critical to assess the real-world impact on profitability.

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Lumida's website (referred to herein as the "Website") is limited to the dissemination of general information pertaining to its advisory services, together with access to additional investment-related information, publications, and links. Accordingly, the publication of the Website on the Internet should not be construed by any client and/or prospective client Lumida’s solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the Internet.

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