Conflicting data from China’s economy in April paints a picture of a two-speed recovery, as strength in private surveys runs against official signs of slowing momentum.
China’s private services sector grew faster in April, with the RatingDog Services PMI rising to 52.6 from 52.1, yet this acceleration in a key part of the new economy contrasts sharply with official data showing a broader slowdown and contraction in non-manufacturing activity, deepening questions about the stability of the country's recovery.
"The outlook of the export sector is very important for China's economy, as domestic demand has been weak," Zhiwei Zhang, chief economist at Pinpoint Asset Management, said in a recent note, highlighting the economy's reliance on external demand.
The optimistic RatingDog services reading follows its manufacturing counterpart, which surged to 52.2. However, official data from the National Bureau of Statistics (NBS) showed a more troubled picture. The official non-manufacturing PMI, which includes services and construction, fell into contraction at 49.4, while the official manufacturing PMI edged down to 50.3. This pushed the composite PMI to 50.1, barely in expansion.
This divergence between private and official surveys underscores an uneven recovery heavily dependent on a booming export trade while domestic demand remains fragile. The weakness in the official non-manufacturing PMI points to sluggish consumer spending and a struggling property sector, challenges that may require more targeted stimulus from the People's Bank of China to ensure broader, more balanced growth through 2026.
The latest figures from China present a puzzle for investors. The RatingDog Services PMI, a private survey focusing on newer, export-oriented firms, showed a healthy acceleration to 52.6 in April. This suggests that activity in the services sector, at least among these companies, is robust. This mirrors the strength seen in the RatingDog manufacturing survey, which climbed to a multi-year high of 52.2, driven by a surge in new export orders.
This private-sector optimism, however, is not reflected in the official government surveys. The National Bureau of Statistics (NBS) reported that its non-manufacturing PMI fell to 49.4, dropping below the 50-mark that separates expansion from contraction for the first time in months. The official manufacturing PMI, while still in expansion at 50.3, also showed a slight loss of momentum from March's 50.4 reading.
The split in the data highlights the two different engines of the Chinese economy. Export-oriented manufacturers, particularly in high-tech sectors, are thriving. First-quarter trade data showed massive year-over-year growth in exports of electric vehicles (up 78 percent), lithium batteries (up 50 percent), and semiconductors (up 78 percent), according to Barclays. This strength appears to have continued into the second quarter.
However, this export strength has not translated into a robust domestic recovery. The contraction in the official non-manufacturing PMI was driven chiefly by sluggish domestic demand, as consumers remain hesitant to spend amid a deteriorating labor market and economic uncertainty. This weakness is a significant headwind for Beijing's 2026 GDP growth target of 4.6 percent, as consumption is expected to be a primary driver. The divergence suggests that without a significant pickup in domestic spending, the economic recovery will remain unbalanced and vulnerable to external shocks.
This article is for informational purposes only and does not constitute investment advice.
