China services sector growth slows sharply in January ahead of Lunar New Year as coronavirus bites

Caixin/Markit services purchasing managers’ index (PMI), a gauge of sentiment among smaller, private firms, fell to 52.0 in January from 56.3 in December

Downbeat data ahead of Lunar New Year are likely to weight on first quarter growth and will reinforce calls for Beijing not to scale back economic support

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China’s Caixin/Markit services purchasing managers’ index (PMI), a gauge of sentiment among smaller, private firms, fell to 52.0 in January from 56.3 in December. Photo: Xinhua

Published: 9:54am, 3 Feb 2021Updated: 9:50am, 4 Feb 2021

China’s services sector activity growth slowed sharply in January, a private sector survey showed on Wednesday, as the latest coronavirus outbreak hit sentiment hard ahead of the Lunar New Year holiday period.

The Caixin/Markit services Purchasing Managers’ Index (PMI) fell to 52.0 in January from 56.3 in December, indicating that sector activity continued to expand, but at its slowest pace since April last year, the first month of China’s economic recovery from the original coronavirus outbreak.

A reading above 50 indicates growth in sector activity, while a reading below represents contraction. The higher the reading above 50, the faster the pace of expansion.

“The services sector’s post-epidemic recovery continued, but at a much slower pace,” said Wang Zhe, senior economist at Caixin Insight Group, in a statement accompanying the data release. “Some surveyed enterprises said the services market continued to recover, while many said the market had been hurt by the resurgence of the Covid-19 pandemic.”

Authorities imposed a series of local lockdowns in January to contain small-scale outbreaks in northern China in the country’s worst coronavirus wave since March 2020.

But official data shows the number of new cases has dropped significantly in recent days, suggesting authorities are managing to contain the outbreak before the Lunar New Year holiday, which start on Feb. 11.

The Caixin survey mainly covers smaller, private sector firms and its results mirror the drop in the official service sector sentiment released on Sunday. Together, the data underscores the fragility of the Chinese service sector ahead of the Lunar New Year holiday period, which accounts for a large share of the nation’s consumer spending as million of urban workers return to their hometowns and spend large sums on travel, gifts and food.

Small and medium-sized enterprises contribute more than 60 per cent of the country’s gross domestic product and account for over 80 per cent of urban jobs, according to the government figures.