Caixin PMI Shows Jump in Services Sector as Covid-19 Abates in China

China’s service providers saw the first expansion in their businesses in four months in May, as domestic demand rebounded with the easing of the Covid-19 epidemic in the country, a Caixin-sponsored survey showed Wednesday.

The Caixin China General Services Business Activity Index, which gives an independent snapshot of operating conditions in the country’s services sector, jumped to 55 last month from 44.4 in April. A number above 50 indicates an expansion in activity, while a figure below that points to a contraction. In February, the index, also known as the Caixin China services PMI, fell to a record low of 26.5 as the economy slowed to a crawl with restrictions to control the spread of the new coronavirus. In May, services activity grew at the fastest month-on-month pace since October 2010.

“Supply and demand both recovered quickly in the services sector,” said Wang Zhe, a senior economist at Caixin Insight Group. The measure for new business in the services sector reached its highest point in almost 10 years, returning to positive territory.

More businesses in service industries such as restaurants, hotels and tourist agencies have been getting back to work as travel restrictions have lifted. Consumer spending also got a boost from spending vouchers issued by some local governments, as well as discounts offered by businesses.

The sharp rise in the Caixin services PMI for May followed a rise in the Caixin manufacturing PMI, whose reading that month rose to 50.7 from 49.4 in April. The Caixin China Composite Output Index, which covers both manufacturing and service companies, came in at 54.5 in May, up from 47.6 the previous month, the survey showed.

The major drag on services last month was sluggish external demand, as many countries had not lifted lockdowns imposed to counter the coronavirus pandemic. The gauge for new export business in the services sector remained in contractionary territory for the fourth straight month.

While businesses showed signs of recovery, employment in the services sector remained under pressure. The gauge for employment stayed in negative territory for the fourth month in a row despite a slight increase. “Most companies in the survey expressed caution about expanding hiring, citing concerns over cutting costs and improving efficiency,” Wang said, adding that the current recovery of supply and demand was still unable to completely offset the fallout from the pandemic.

Stabilizing employment in both the manufacturing and services sectors is a top priority for policymakers this year. At the annual session of the National People’s Congress (NPC), the country’s top legislature, the government announced a stimulus and relief package worth several trillion yuan, with a focus on helping businesses and people in need. The NPC approved the package Friday.

Service providers were generally optimistic about the outlook for their businesses. “A number of monitored companies anticipate global economic conditions to strengthen once the pandemic situation improves,” said a statement from IHS Markit Ltd., a London-based data analytics firm that compiles the Caixin services PMI.

Contact reporter Guo Yingzhe (yingzheguo@caixin.com) and editor Michael Bellart (michealbellart@caixin.com)

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