China’s Caixin Services PMI Climbs—Can Stimulus Boost Domestic Demand? Hang Seng Dips

China’s Services Sector PMI Rises But Domestic Demand Remains Weak

On Wednesday, March 5, China’s economy remained in focus as Beijing reinforced its commitment to stimulus policies aimed at boosting domestic consumption.

The Caixin Services PMI rose from 51.0 in January to 51.4 in February, higher than a forecasted 50.8. The February PMI survey highlighted key trends:

• New business increased at a slightly faster pace but remained below its historical trend level.
• Meanwhile, growth in new export business reached a three-month high.
• Employment conditions improved, with firms increasing staffing levels for the first time in three months.
• Optimism across the services sector rose to its highest level since November on hopes of stronger demand and improving economic conditions.
• Input prices fell for the first time since June 2020, leading firms to pass cost savings on to customers.

Despite the improvement, February’s PMI survey highlighted ongoing weakness in domestic demand. However, Beijing’s plans to introduce stimulus measures, targeting domestic consumption, could boost services sector activity. China’s third session of the 14th National People’s Congress began on Tuesday, March 4.

 

Expert Views on China’s Services Sector

Dr. Wang Zhe, Senior Economist at Caixin Insight Group, commented on February’s survey:

“Market sentiment continued to improve. The indicator for future activity expectations rose for the second consecutive month, staying in expansionary territory. Service firms were generally optimistic about the economic outlook for the coming year and planned to take more aggressive measures to boost sales.”

The Market Reaction to the Caixin Services PMI

Financial markets reacted swiftly to the Caixin Services PMI data, reflecting shifting sentiment toward China’s economic outlook.

Before the PMI data, the Hang Seng Index climbed to a high of 23,486. However, in response to the February PMI report, the Index briefly rose to a high of 23,514 before falling to a post-report low of 23,294.

On Wednesday, March 5, the Index was up 1.64% to 23,319 for the morning session. Despite the Services PMI weighing on risk sentiment, news of President Trump planning to roll back tariffs on Canada and Mexico fueled hopes of similar relief for China.

In the forex market, the AUD/USD reacted negatively to the PMI data, falling from $0.62587 to a post-report low of $0.62465. On March 5, the AUD/USD was down 0.37% to $0.62480.

The Aussie dollar continues to experience volatility amid uncertainty about China’s economic outlook and US trade policies.

What’s Next? US Tariffs in Focus

On Wednesday, March 5, President Trump may announce adjustments to recent tariff hikes on Canada and Mexico. Any rollback—and hints of a similar easing of tariffs on China—could improve risk sentiment, potentially lifting the Aussie dollar and Asian equity markets.

However, investors should remain cautious, as retaliatory measures or an escalation of trade tensions could negatively impact Hang Seng Index-listed stocks and the Australian dollar.

Discover strategies to navigate this week’s market trends here.