China’s services sector saw a slowdown in growth in August despite the summer travel peak, leading some firms to reduce staff due to concerns about rising costs, according to a private-sector survey released on Wednesday.

The Caixin/S&P Global services purchasing managers’ index (PMI) dropped to 51.6 in August from 52.1 in July, indicating slower expansion. The index above 50 suggests growth, but the lower figure indicates a deceleration compared to the previous month.

Although new business in the sector continued to grow, the pace was slower than in July. Notably, export business activity accelerated, driven by increased interest from overseas clients in China’s tourism industry.

However, this growth did not translate into job creation. Employment in the services sector declined in August after a rise in July, with firms citing the need to cut costs as a reason for job reductions.

The survey highlighted rising average input prices, with cost inflation reaching its highest since June 2023. Conversely, selling prices fell for the first time in seven months, with the rate of decline being the sharpest since April 2022.

This price decrease was attributed to rising competition, which pushed service providers to lower prices and offer discounts to maintain sales.

The Caixin/S&P Global Composite PMI, which includes manufacturing and services, remained steady at 51.2 in August, unchanged from July. While manufacturing output growth increased, the slower service expansion offset it.

The broader economic outlook remains challenging, with factory owners reducing product prices to stay competitive, consumers cutting back on spending, and the property sector struggling to recover. External geopolitical uncertainties compound these challenges.