China Service Sector Contracts Sharply On Containment Measures

China’s service sector contracted sharply in April as the introduction of tighter COVID-19 containment measures led to quicker reductions in activity and new orders, survey results from S&P Global showed on Thursday.

The Caixin services Purchasing Managers’ Index fell to 36.2 in April from 42.0 in March. A score below 50.0 indicates contraction.

The rate of reduction in activity was the second-sharpest seen in the survey history, with companies frequently linking the fall to tighter COVID-19 restrictions and subsequent disruption to operations.

The survey showed that new business decreased at the second-steepest rate on record and new export orders fell at the sharpest pace in two years.

Despite the drop in business activity and weaker demand conditions, expectations around future output improved slightly in April.

There was only a marginal drop in staffing levels in April. Meanwhile, the escalation of the containment measures restrained firms’ operations and led to a further rise in outstanding business.

Average input costs increased in April reflecting higher raw materials and fuel prices. Prices charged by services companies meanwhile fell for the first time in eight months.

The Caixin composite output index, a weighted average of the manufacturing output index and the services business activity index, posted 37.2 in April, down from 43.9 in March. The rate of contraction was the second-sharpest in the series history.

The survey found that 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.

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