Full Text: Caixin China General Services PMI (December 2021)

Services activity increases solidly during December

Key findings

• Companies signal stronger rises in business activity and new work

• Inflationary pressures weaken

• Business confidence edges down to 15-month low

Data were collected 03-15 December 2021

Chinese service providers signalled a strong end to 2021, with firms registering faster increases in both business activity and overall new work. Improved sales and efforts to increase capacity led to a further rise in staffing levels. Nonetheless, backlogs of work continued to increase and at the quickest rate for nearly two years. Cost pressures eased, with both input costs and output charges rising at weaker rates. However, uncertainty over the pandemic weighed on business confidence regarding the year ahead, with sentiment slipping to a 15-month low in December.

The headline seasonally adjusted Business Activity Index increased from 52.1 in November to 53.1 in December, to indicate a stronger rise in services activity at the end of 2021. Output has now increased in each of the past four months, with the latest rise solid overall. Companies that registered higher activity levels often mentioned that improved market conditions, new product releases and higher sales had supported growth.

Total intakes of new business also rose for the fourth successive month in December. The rate of expansion quickened from November's three-month low, but was moderate overall. Some firms indicated that the pandemic, and measures to contain the virus, had weighed on new orders.

Services companies also registered a further increase in new orders from abroad. That said, the rate of growth was similar to those seen in the prior two months and marginal.

Improved demand conditions and efforts to increase operational capacity led to an increase in Chinese service sector employment for the fourth month running. Though only mild, the rate of job creation was the quickest seen since May.

Although staff numbers increased, backlogs of work expanded for the fifth time in the past six months during December. The rate of accumulation was the quickest seen since February 2020, albeit modest overall. When explaining the latest rise in unfinished work, companies generally commented on higher intakes of new work, though some firms also mentioned that the pandemic had hampered their ability to fulfil orders.

As has been the case since July 2020, average input costs increased in the final month of 2021. The rate of inflation softened since November, but was nonetheless solid overall. Firms often cited increased costs for raw materials and staff. At the same time, charges set by services companies rose only modestly in December, with the rate of inflation edging down to a four-month low. Higher fees were generally associated with the pass-through of higher costs to clients.

Although Chinese service providers remained highly upbeat regarding the 12-month outlook for business activity, overall sentiment softened since November. Notably, the degree of optimism was the lowest seen since September 2020, largely due to concerns around how long it will take to bring the pandemic under control globally.

Comment

Commenting on the China General Services PMI™ data, Dr. Wang Zhe, Senior Economist at Caixin Insight Group said:

“The Caixin China General Services Business Activity Index rose to 53.1 in December from 52.1 the previous month, indicating continuous recovery of the services sector.

“Supply and demand both improved. As new products helped lift the market sentiment, business activity and total new business both expanded for the fourth consecutive month. But surveyed enterprises were concerned about the disruptions caused by scattered Covid-19 flare-ups. Overseas demand was stable with little change in the gauge for new export business from the previous month.

“The job market for services improved as the measure for employment stayed in expansionary territory for the fourth consecutive month. But employment expanded at a significantly slower pace than business activity and total new business, resulting in an increase in outstanding work at the fastest pace since February 2020.

“Service costs rose at a slower rate. The measures for input costs and the prices charged by service providers both dropped from the previous month, indicating lower inflationary pressure. But raw material and labor costs were still high as input costs have risen for 18 months in a row. The gauge for input costs was higher than that for prices charged by service providers for the 15th consecutive month, reflecting the pressure on service providers.

“Businesses were less optimistic due to worries about the pandemic’s fallout. Although the measure for business expectations remained in positive territory, it fell to the lowest since September 2020 and was remarkably lower than the long-term average."

Caixin China General Composite PMI™

Chinese business activity expands at strongest rate since July

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.

At 53.0 in December, the Composite Output Index rose from a three-month low of 51.2 in November and signalled a solid increase in overall business activity across China. Output has now risen in each of the past four months, with the latest increase the quickest since July. Detailed data highlighted stronger rates of output growth across both manufacturing and service sectors at the end of the year.

Total new orders also rose at a quicker pace in December, supported by a steeper increase in services sales and a renewed upturn in manufacturing orders. However, employment at the composite level was stagnant, as higher staffing levels at services companies were offset by a further fall in manufacturing payrolls.

Chinese companies registered a further increase in average input costs, albeit with the rate of inflation weakening to a 15-month low. Business confidence meanwhile softened at the end of the year, and slipped to its lowest since May 2020.

Comment

Commenting on the China General Composite PMI™ data, Dr. Wang Zhe, Senior Economist at Caixin Insight Group said:

“The Caixin China General Composite PMI came in at 53 in December, higher than 51.2 the previous month. Supply and total demand of both manufacturing and services recovered. Employment was basically stable with the manufacturing job market being relatively weak. The gauges for prices dropped, indicating easing inflationary pressure. Overseas demand was stable. Businesses were less optimistic.

“To sum up, the economy recovered in December with improvements in demand and supply of manufacturing and services. Inflationary pressure eased. But the job market was still under pressure and businesses were less optimistic, raising questions about the stability of the economic recovery. The repeated Covid-19 flare-ups and sluggish overseas demand were challenges to stability. As policymakers said at the Central Economic Work Conference that China’s economic growth is facing triple pressures of “demand contraction, supply shock and weakening expectation,” stabilizing the economy will become the key priority of economic work in 2022.

“We are aware that the employment subindex under the Caixin manufacturing PMI and the official surveyed unemployment data both indicated a weakening momentum of the job market. Policymakers should focus on shoring up employment as well as on targeted support to small and midsize businesses. They should make polices more consistent, stable and predictable.”

Contact

Dr. Wang Zhe

Senior Economist

Caixin Insight Group

+86-10-8590-5019

zhewang@caixin.com

Ma Ling

Senior Director

Brand and Communications

Caixin Insight Group

T: +86-10-8590-5204

lingma@caixin.com

Annabel Fiddes

Associate Director

IHS Markit

T: +44 1491 461 010

annabel.fiddes@ihsmarkit.com

Joanna Vickers

Corporate Communications

IHS Markit

T: +44 207 260 2234

joanna.vickers@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