Caixin China General Services PMI (November 2021)

Softer increase in services activity during November

Key findings

• Business activity growth dips to three-month low amid slower rise in sales

• Companies continue to expand workforce numbers

• Input costs rise at sharper rate

Data were collected 12-22 November 2021

Latest PMI data showed a further expansion of service sector activity across China during November, but growth softened from October amid the recent rise in COVID-19 cases. New order inflows rose only slightly, while growth in new export business remained mild. Nonetheless, firms were strongly upbeat regarding the 12-month outlook for activity, and continued to increase their staffing levels. Higher labour, raw materials and energy costs all drove a sharper rise in input costs, however, which contributed to a further increase in output charges.

The headline seasonally adjusted Business Activity Index fell from 53.8 in October to 52.1 in November, to signal a third successive monthly increase in Chinese services activity. That said, the rate of expansion was the slowest seen over this period and only modest. Panel members often mentioned that the recent increase in virus cases had weighed on performance and impacted sales.

Total new business rose at the slowest rate for three months in November and only marginally overall. Firms indicated that measures to curb the spread of COVID-19 had dampened new order inflows. Foreign demand also rose only slightly, with the pandemic also cited as a key reason for relatively muted growth.

Despite the disruption to business activity due to COVID-19 and a softer rise in new work, firms remained strongly confident that output will increase over the next year, with the level of optimism strengthening from October. Growth forecasts were frequently linked to expectations that the pandemic will be brought under control globally and demand conditions will improve.

Strong business confidence and efforts to expand capacity led to a further rise in service sector employment during November. The rate of job creation was the quickest seen since May, albeit marginal overall. Staffing levels have now increased in four of the past five months.

After stabilising in October, the amount of outstanding business at Chinese service providers rose in November. Some firms mentioned that a combination of higher sales and the pandemic had placed some pressure on capacities. That said, the rate of accumulation was only slight.

Average input prices rose for the seventeenth month running in November amid reports of increased costs for labour, materials and energy. Furthermore, the rate of inflation accelerated to a six-month high and was sharp overall.

In contrast to the trend for input costs, prices charged by services companies rose at a softer rate in November. Some firms commented that softer demand conditions had weighed on overall pricing power.

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 came in at 52.1 in November, down from 53.8 in October. The prospects for the services sector continued to improve.

"Supply and demand both recovered but at a slower pace. In November, the gauges of business activity and total new business both fell to their lowest in three months, while remaining in positive territory. The resurgence of local Covid-19 outbreaks had a bigger impact on demand than on supply. Overseas demand continued to strengthen, with the gauge of new export orders remaining in positive territory for the second straight month in November.

"The services job market continued to recover. Employment increased in four of the past five months, indicating that the recovery was solid. Outstanding business remained stable overall.

"Prices in the services sector kept rising. The gauge of input costs rose to the highest over the past half year in November, remaining in positive territory for 17 consecutive months. Rising prices of raw materials and energy, as well as higher labor costs, burdened service providers. Part of this pressure was transmitted downstream. Output prices continued to rise. Notably, the gauge of input costs was higher than the gauge of output prices over the past 14 months, underscoring huge pressure in services.

"Businesses stayed relatively optimistic in November. The gauge of business expectations rose slightly from the previous month. Expectations that the coronavirus situation will improve were a major factor in this optimism."

Caixin China General Composite PMI™

Total business activity across China continues to rise modestly

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.

The Composite Output Index edged down from 51.5 in October to 51.2 in November, to signal an increase in total Chinese business activity for the third month in a row. That said, the rate of expansion was the softest seen over this period and modest overall. The upturn was also weaker than the long-run trend (52.6). Sector data showed that a slower rise in services activity offset a renewed, albeit fractional, increase in manufacturing output.

At the composite level, new order growth slowed to a fractional pace that was the slowest for three months. Employment meanwhile remained broadly stable, as job creation at services companies largely offset a drop in manufacturing workforce numbers. Composite input prices and output charges both rose at noticeably slower rates compared to October, predominantly driven by slower increases in the manufacturing sector.

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 51.2 in November, down from 51.5 the previous month. Supply and demand at home and abroad, as well as employment, remained stable overall. Gauges for prices fell in November from the previous month but were still in positive territory. Costs in services rose fairly quickly.

"Overall, conditions in the manufacturing sector remained stable in November, while for the service sector, expansion occurred at a slightly slower pace. The downward pressure to the economy grew, and inflationary pressure was partly eased. From late October to mid-November, sporadic Covid outbreaks in several Chinese regions had a negative impact on the economy, in particular suppressing the demand side. On the supply side, production began to recover after power shortages were eased. But the recovery was limited, and the foundation of the recovery was not solid. The government’s measures to stabilize commodity supplies and prices significantly eased cost pressures on manufacturing enterprises, but had a limited impact on the reduction of costs to service enterprises. Overall, inflationary pressure remained.

"Policymakers should still focus on supporting small and midsize enterprises. They should also pay attention to problems including deteriorating job prospects, limited household income growth and weak consumer purchasing power. In addition, the prices of some raw materials remained high. Enterprises are still facing high cost pressures. Policymakers should take inflation seriously.”

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

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