Caixin
Nov 03, 2021 09:40 AM
ECONOMY

China’s Services Sector Extends Recovery, Caixin PMI Shows

Activity in China’s services sector continued to expand in October thanks to the fading impact of the previous round of Covid-19 flare-ups, though service providers were under higher inflationary pressure, a Caixin-sponsored survey showed.

The Caixin China General Services Business Activity Index, which gives an independent snapshot of operating conditions in the sector, rose to 53.8 in October from 53.4 the previous month, according to the survey report released Wednesday. A number above 50 indicates an expansion in activity, while a figure below that points to a contraction.

The indicator, also known as the Caixin services PMI, is watched by observers and investors as one of the earliest available monthly barometers of the health of the world’s second-largest economy. The reading marked the second consecutive month of services recovery and accompanied a pickup in manufacturing activity seen in the Caixin China manufacturing PMI for October, which rose to 50.6 from 50 for September.

“(Services) supply and demand both recovered as disruptions from local Covid-19 outbreaks faded by the middle of October,” said Wang Zhe, a senior economist at Caixin Insight Group.

The breakdown of the October Caixin services PMI survey showed that total new business and employment in the sector both expanded for the second month in a row. “Companies that added to their staffing levels generally linked this to rising customer demand and efforts to increase capacity,” according to the survey report. Overseas demand bounced back as the gauge for new export business returned to expansionary territory.

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Service providers bore higher inflationary pressure in October as input costs rose at a faster pace than the previous month. “Panel members attributed the latest rise in expenses to greater staff and raw materials costs,” the report said.

Consequently, the prices charged by service providers increased for the second month in a row. “Solid demand allowed businesses to pass part of this rise in costs downstream,” Wang said.

Surveyed companies remained generally optimistic about the business outlook, but overall degree of optimism softened as the measure for business expectations fell to the lowest point in four months. Some expressed worries about rising costs and the stability of supply chains.

The Caixin China General Composite PMI, which covers both manufacturing and services sectors, rose slightly to 51.5 in October from 51.4 the previous month, according to the survey report. China’s official services PMI, released by the National Bureau of Statistics on Sunday, dropped to 51.6 in October from 52.4 the previous month.

“Shortages of raw materials and soaring commodity prices, combined with electricity supply problems, created strong constraints for manufacturers. Those factors also had a significant impact on services enterprises,” Wang said.

As a new wave of Covid-19 outbreaks emerged across a number of regions since late October, some economists warned about fresh disruptions to economic activity due to repeated local lockdowns and travel restrictions. Some analysts also cautioned about the cooling property market’s negative impact on the economy.

“We expect industrial and GDP growth to slow further in the fourth quarter on a year-on-year basis, amid the real estate slowdown and another Covid outbreak. In response, we think policymakers will take more steps to shore up growth,” Louis Kuijs, head of Asia economics at research firm Oxford Economics Ltd., wrote in a Monday note.

Contact reporter Guo Yingzhe (yingzheguo@caixin.com) and editor Bertrand Teo (bertrandteo@caixin.com)

Read more about Caixin’s economic indexes.

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