Caixin China General Services PMI (April 2020)

Including Caixin China Composite PMI™

Service sector conditions remain challenging as pandemic weighs on demand

Key findings

Slower reduction in business activity

Total new work falls modestly, but export sales decline at near-record pace

Companies trim their staff numbers for third month in a row

Data were collected 7-22 April 2020

Chinese service providers signalled further falls in both business activity and new work during April, though rates of reduction eased further from February. The coronavirus disease 2019 (COVID-19) pandemic remained a key factor weighing on performance, having led to reduced client spending and disruption to business operations on a global scale. Notably, new export sales declined at the second-quickest pace on record.

Consequently, firms continued to trim their payroll numbers amid further signs of spare capacity. Input costs were meanwhile broadly stable, as firms discounted their selling prices again as part of attempts to boost new orders. Encouragingly, business confidence picked up for the second month running.

The seasonally adjusted headline Business Activity Index posted 44.4 in April, up from 43.0 in March, to signal a further steep decline in services activity at the start of the second quarter. That said, the index rose further from February's record low. Firms that registered lower business activity widely commented on the negative impact of the COVID-19 virus on new work and business operations.

Total new business received by Chinese service providers fell for the third month in a row in April. That said, the rate of decline eased further from February's record pace and was only modest. The reduction in total sales was widely linked to weaker demand conditions both at home and overseas. Notably, new export orders fell at the second-sharpest rate since the series began in September 2014 as many firms commented that the pandemic had resulted in temporary company closures and other restrictions across many export markets.

The sustained drop in total new work led to a further fall in employment across the sector. Moreover, the rate of job shedding was the quickest recorded since data collection began in late-2005. Despite lower headcounts, backlogs of work declined again in April as lower intakes of new business freed up capacity.

After a modest rise in March, operating expenses were broadly unchanged in April. According to panel members, increased expenditure on virus protection measures was largely offset by lower staffing costs and reduced prices for inputs such as oil and diesel. Prices charged by services companies in China meanwhile fell for the fifth month running as part of strategies to boost new orders.

Despite the current challenging climate, optimism towards the 12-month outlook picked up to a three-month high amid hopes of a recovery in conditions once the pandemic situation improves.

Caixin China Composite PMI™

Chinese business activity falls modestly, driven by weak service sector performance

Composite indices are weighted averages of comparable manufacturing and services indices. Weights reflect the relative size of the manufacturing and service sectors according to official GDP data. The China Composite Output Index is a weighted average of the Manufacturing Output Index and the Services Business Activity Index.

April data signalled a third consecutive monthly decline in total Chinese business activity. That said, the pace of reduction eased further from February's all-time record and was only modest. This was shown by the Composite Output Index rising from 46.7 in March to 47.6. Companies continued to cite the negative impact of the COVID-19 pandemic on business operations and demand.

Total new work fell again in April, which was predominantly driven by the steepest decline in composite export orders on record as clients globally faced more restrictions to halt the spread of the virus. Consequently, firms continued to cut their staff numbers, and at a quicker rate than in March.

Operating expenses meanwhile fell slightly after increasing in March. At the same time, firms continued to cut their prices charged in hopes of attracting sales.

Comment

Commenting on the China General Services and Composite PMI data, Dr. Zhengsheng Zhong, Chairman and Chief Economist at CEBM Group said:

“The Caixin China General Services Business Activity Index rose slightly to 44.4 in April from the previous month, staying at a low level. Domestic services activity remained under notable pressure amid the coronavirus pandemic.

1. Falling overseas demand dragged on the services sector. The gauge for total new business remained in contractionary territory but improved somewhat from the previous month. The measure for new export business dropped to the second-lowest level since the data series began in September 2014, just above the February reading. The gauge for outstanding business fell further into negative territory, reflecting sluggish demand.

2. Employment in the services sector contracted at the fastest pace on record. The measure for employment hit its lowest level since the survey began more than 14 years ago. China will work to bail out services companies hit hard by the pandemic, as policymakers have made stabilizing employment their top priority. Bigger tax and fee cuts are urgently needed.

3. Service providers’ business confidence recovered markedly. The fall in prices that companies charged customers slowed down, and input costs rose at a slower clip amid shrinking employment and falling oil prices. This helped ease pressure on company profits. The gauge for business expectations for the coming 12 months rose noticeably, suggesting that companies grew more optimistic about the prospects of a recovery in consumption.

“The Caixin China Composite Output Index rose slightly to 47.6 in April from the month before. New export orders shrank at a steeper rate in April than in February, indicating that the March rebound in exports was not sustainable, as it was due chiefly to delayed deliveries of orders received before the Lunar New Year holiday. The second shockwave for China’s economy brought about by shrinking overseas demand should not be underestimated in the second quarter. Employment contracted more rapidly in April, adding urgency to job market stabilization. Pressure on input costs eased slightly thanks to falling global oil prices and some companies’ layoffs.

“In April, the severe export shock on China’s economy had a knock-on impact on household income and consumption, as well as business investment. As the recovery of domestic consumption was limited and increased infrastructure spending was not enough to offset the plunge in external demand, the country’s economy continued to decline year-on-year. In the April 17 Politburo meeting, top policymakers vowed to take stronger measures to cushion the epidemic’s impact. We expect a macroeconomic stimulus package to launch soon, providing aid for businesses, safeguarding employment and boosting investment and consumption.”

Contact

Dr. Zhengsheng Zhong

Chairman and Chief Economist

CEBM Group

T: +86-10-8104-8016

zhongzhengsheng@cebm.com.cn

Ma Ling

Senior Director

Brand and Communications

Caixin Insight Group

T: +86-10-8590-5204

lingma@caixin.com

Annabel Fiddes

Principal Economist

IHS Markit

T: +44 1491 461 010

annabel.fiddes@ihsmarkit.com

Bernard Aw

Principal Economist

IHS Markit

T: +65 6922 4226

bernard.aw@ihsmarkit.com

Katherine Smith

Public Relations

IHS Markit

T: +1-781-301-9311

katherine.smith@ihsmarkit.com

About Caixin

Caixin is an all-in-one media group dedicated to providing financial and business news, data and information. Its multiple platforms cover quality news in both Chinese and English.

Caixin Insight Group is a high-end financial research, data and service platform. It aims to be the builder of China’s financial infrastructure in the new economic era

For more information, please visit www.caixin.com and www.caixinglobal.com.

About IHS Markit

IHS Markit (NYSE: INFO) is a world leader in critical information, analytics and solutions for the major industries and markets that drive economies worldwide. The company delivers nextgeneration information, analytics and solutions to customers in business, finance and government, improving their operational efficiency and providing deep insights that lead to well-informed, confident decisions. IHS Markit has more than 50,000 business and government customers, including 80 percent of the Fortune Global 500 and the world’s leading financial institutions.

IHS Markit is a registered trademark of IHS Markit Ltd. and/ or its affiliates. All other company and product names may be trademarks of their respective owners © 2020 IHS Markit Ltd. All rights reserved.

About PMI

Purchasing Managers’ Index™ (PMI™) surveys are now available for over 40 countries and also for key regions including the eurozone. They are the most closely watched business surveys in the world, favoured by central banks, financial markets and

business decision makers for their ability to provide up-to-date, accurate and often unique monthly indicators of economic trends. To learn more go to ihsmarkit.com/products/pmi.html.

If you prefer not to receive news releases from IHS Markit, please email katherine.smith@ihsmarkit.com. To read our privacy policy, click here.

Disclaimer

The intellectual property rights to the data provided herein are owned by or licensed to IHS Markit. Any unauthorised use, including but not limited to copying, distributing, transmitting or otherwise of any data appearing is not permitted without IHS Markit’s prior consent. IHS Markit shall not have any liability, duty or obligation for or relating to the content or information (“data”) contained herein, any errors, inaccuracies, omissions or delays in the data, or for any actions taken in reliance thereon. In no event shall IHS Markit be liable for any special, incidental, or consequential damages, arising out of the use of the data. Purchasing Managers’ Index™ and PMI™ are either registered trade marks of Markit Economics Limited or licensed to Markit Economics Limited. IHS Markit is a registered trademark of IHS Markit Ltd. and/ or its affiliates.

Download the report in PDF