China's services activity falls at second sharpest rate on record – Caixin PMI

BEIJING (Reuters) – China’s services sector activity contracted at the second-steepest rate on record in April, as COVID curbs halted the industry, leading to sharper reductions in new business and employment, a private-sector survey showed on Thursday.

People dine at a hotpot restaurant in Beijing, China April 8, 2022. Picture taken April 8, 2022. REUTERS/Tingshu Wang/Files

The Caixin services purchasing managers’ index (PMI) stood at 36.2 in April, the second-lowest since the survey begun in November 2005 and down from 42 in March. The index hit a record low of 26.5 in February 2020 during the onset of the pandemic.

The 50-point mark separates growth from contraction on a monthly basis.

The pessimistic findings from the survey, which focuses more on small firms in coastal regions, are in line with the government’s official PMI, pointing to the fast deterioration in a key sector that accounts for about 60% of the economy and half of the urban jobs.

A sub-index for new business stood at 38.4, also the second-lowest on record and down from 45.9 the previous month, with services firms reporting the escalation of measures to contain the spread of COVID cases weighed heavily on customer demand at the start of the second quarter.

Employment also declined for the fourth straight month in April, although the drop was marginal, compared with sizeable falls in activity.

Input costs meanwhile rose at a solid pace but efforts by services firms to attract more business amid lacklustre demand drove a drop in prices charged, highlighting rising cost pressures facing services providers.

“Demand was under pressure, external demand deteriorated, supply shrank, supply chains were disrupted, delivery times were prolonged, backlogs of work grew, workers found it difficult to return to their jobs, inflationary pressures lingered, and market confidence remained below the long-term average,” said Wang Zhe, senior economist at Caixin Insight Group.

“The government should boost support for enterprises in industries that are greatly affected by the outbreaks, to stabilize market expectations. During the recent round of outbreaks, many company employees, gig workers and low-income groups have watched their incomes shrink and their lives grow more difficult, so the government should offer them subsidies.”

Caixin’s April composite PMI, which includes both manufacturing and services activity, slumped to 37.2 from 43.9 from the previous month.

The Caixin PMI is compiled by S&P Global from responses to questionnaires sent to purchasing managers in China.

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