<p>China's services activity continued to expand in March, but at a slower pace than in February. Moderate cost pressures allowed companies to lower service charges, while new export business returned to contraction.</p>
<p>On April 3, the latest data showed that the RatingDog China General Services Business Activity Index recorded 52.1 in March, down from the 33-month high of 56.7 in February. However, it remained above the 50-point threshold, marking the 39th consecutive month of service sector expansion.</p>
<p><img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/8fac3895-584b-4b08-8e25-5a8b9cd828da.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/8fac3895-584b-4b08-8e25-5a8b9cd828da.png"/></p>
<p>There was a clear divergence between domestic and international demand. Domestic demand continued to support new business growth, but new business from the international market, after achieving growth in February, turned to a slight decline in March. Meanwhile, service sector employment contracted for the second consecutive month, with the pace of contraction being the fastest in six months.</p>
<p>The data also indicated that the composite output index fell from 55.4 to 51.5 in March, signifying a slower pace of expansion but remaining near the average over the past two years.</p>
<p><img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/4adcdda9-adb3-4fdb-9f63-37ac40416d53.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/4adcdda9-adb3-4fdb-9f63-37ac40416d53.png"/></p>
<p>Yao Yu, founder of RatingDog, stated that overall operating conditions remained stable in March, with domestic demand providing support. However, fluctuations in external demand and the second consecutive month of employment contraction are risk factors that warrant attention. He anticipates that the services PMI will remain in the expansionary range in the near term.</p>
<h2>Expansion Continues, Pace Slows from Highs</h2>
<p>In March, China's services business activity continued its expansion cycle that began in January 2023, but the momentum significantly weakened compared to the previous month.</p>
<p>New orders have seen continuous growth for 39 consecutive months, ranking second in the history of this survey. The pace of growth slowed to its lowest level since April 2025. Factors driving new business growth included rising customer demand, an increase in customer numbers, referrals from existing clients, and the launch of new projects. Backlogs of work continued to rise, influenced by the strong demand in February, and have been growing since April 2025. After a brief decline in October last year, it quickly recovered, but the growth rate in March was only slight.</p>
<p>Regarding the composite PMI, both the manufacturing and services sectors saw an increase in total new orders, and backlogs of work recorded the most significant rise in six months, indicating that the overall breadth of growth remains wide.</p>
<h2>External Demand Weakens, Employment Pressure Persists</h2>
<p>The change in demand structure is a notable signal in this month's data. New export orders, after recording growth in the first two months of 2026, saw a slight decline in March, failing to continue the previous expansionary trend. Yao Yu pointed out that new export business &#34;retreated to contractionary territory&#34; after strong expansion in February, with external demand fluctuations remaining a potential risk for the industry.</p>
<p>In terms of employment, the decline in service sector staffing was the fastest in six months. Companies cited reasons such as not replacing employees who left due to retirement, organizational restructuring, and proactive adjustments for cost control. Despite an increase in manufacturing employment, overall employment saw a slight decrease.</p>
<h2>Moderate Costs, Declining Sales Prices</h2>
<p>The price front presented a favorable trend for the market. Average input costs in the services sector rose slightly in March, but the increase was below the long-term average, with overall inflationary pressure remaining low. Sources of cost increases mentioned by companies included fuel, raw materials, labor prices, and expenses related to promotional activities.</p>
<p>Moderate cost pressures provided service providers with room to proactively lower prices. Average selling prices have declined three times in four months, with the sales price index falling back into contractionary territory. Yao Yu believes this change &#34;indicates that pricing pressure in the terminal market has eased,&#34; and companies are clearly willing to use pricing strategies to support sales.</p>
<p>In contrast, composite PMI data showed that surging manufacturing costs pushed the pace of input price increases to a record high since May 2022, indicating a divergence in cost trends between the two major sectors.</p>
<h2>Business Confidence Remains, Short-Term Expansion Expected</h2>
<p>Despite a pullback in several indicators from their highs, service sector companies remain optimistic about their business outlook for the next 12 months.</p>
<p>Business confidence in March weakened slightly compared to February but was broadly in line with the trend since early 2025. Companies cited business expansion plans, market development, new project advancements, promotional activities, and new product launches as sources of confidence.</p>
<p>Yao Yu summarized, &#34;The foundation of domestic demand remains solid, and the easing of cost pressures combined with proactive pricing strategies will help stabilize terminal market demand.&#34; He predicts that the services PMI will continue to remain in the expansionary range in the short term.</p>

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<p>Data shows that China's services PMI has remained in expansion for 39 consecutive months. Solid domestic demand is the main supporting force, and moderate cost pressures have led companies to lower prices to boost demand. Businesses remain optimistic about market prospects for the coming year. The composite output index also fell from 55.4 to 51.5 in March, indicating a slower pace of expansion but still near the average over the past two years</p>

- China's service sector continued to expand in March, with the activity index at 52.1, down from 56.7 in February, indicating ongoing growth for the 39th month.  
- Domestic demand remains robust while international new business saw a slight decline after previous growth, contributing to the second consecutive month of job contraction in the sector.  
- Despite these challenges, businesses maintain a positive outlook for the next 12 months, supported by stabilizing prices and ongoing demand.

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China's March Services PMI Drops to 52.1, Domestic Demand Supports Continued Expansion