“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.

The Caixin data are likely to reinforce expectations that weakness in the service sector will weigh on first quarter growth, with some analysts having already revising down their forecasts before the latest figures.

The data will also support calls for Beijing to avoid any major reduction in its economic support measures in the near future.

Before the release of the Caixin services PMI figures, Lu Ting, chief China economist at Asian investment bank Nomura, cut his forecast for first quarter economic growth to 18.0 per cent from his earlier forecast of 19.0 per cent. More telling, he revised down his first quarter estimate compared to the fourth quarter last year to only 0.3 per cent from 1.3 per cent.

Within the official non-manufacturing PMI, the sub-index for the service sector business activities index fell to 51.1 from 54.8, the largest drop since the spring last year at the height of the original coronavirus outbreak.

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China’s economy accelerated at end of 2020, but virus-hit annual growth lowest in 45 years

China’s economy accelerated at end of 2020, but virus-hit annual growth lowest in 45 years

Caixin’s composite manufacturing and services PMI, also released on Wednesday, fell to 52.2 in January, from 55.8 in December.

The Caixin service sector survey sub-index for employment stood at 50.7, its lowest since July last year, and down from 52.0 the previous month, indicating that service firms continued to hire, but at a slower pace. Growth in new export business, which only returned to expansion in November, also slowed from the month before.

The economic rebound last year was highlighted by a significant acceleration over the last three months of 2020, when China’s economy grew by 6.5 per cent from a year earlier, ahead of analysts’ forecasts of 6.2 per cent growth and in line with the growth rate at the end of 2019, before the original coronavirus outbreak.

However, analysts now wonder whether the Chinese growth rate has plateaued, and will drift downward in coming months.