China services activity contracts for third straight month in May as coronavirus ‘still weighs heavy’
- Caixin/Markit services purchasing managers’ index (PMI) rose to 41.1 in May from 36.2 in April
- Last week, the official non-manufacturing PMI rose to 47.8 from 41.9 in April
China’s services activity contracted for a third straight month in May, pointing to a slow recovery ahead despite the easing of some coronavirus lockdowns in Shanghai and neighbouring cities, a private business survey showed on Monday.
However, the reading remained well below the 50-point mark that separates growth from contraction on a monthly basis.
Analysts say weakness in the services sector, which accounts for about 60 per cent of China’s economy and half of urban jobs, is likely to persist under the government’s zero-Covid policy, with contact-intensive sectors such as hotels and restaurants bearing the brunt of the fallout.
The Caixin survey showed new business, including new export orders, fell for the fourth straight month in May as restrictions on mobility kept customers at home and disrupted operations.
That led services firms to reduce their payrolls at a sharper rate, with a subindex for employment standing at 48.5, the lowest since February last year and down from 49.3 the previous month.
“The Caixin China General Services Business Activity Index (services PMI) came in at 41.4 in May, up from 36.2 the previous month. May’s reading was the second lowest since February 2020 as China’s Covid-19 epidemic still weighed heavily on services activities,” said Wang Zhe, senior economist at Caixin Insight Group.
“The employment measure has remained in contractionary territory since the beginning of this year. The impact of the epidemic has hit the labour market. Enterprises weren’t much motivated to increase hiring. As a result, outstanding business [backlogs] in the services sector grew further.”
China’s economic activity cooled sharply in April as the country grappled with the worst virus outbreak since 2020.
“It’s necessary for policymakers to pay closer attention to employment and logistics. Removing obstacles in supply and industrial chains and promoting resumption of work and production will help to stabilise market entities and protect the labour market,” said Wang, adding that they should also hand out subsidies for people whose income have been affected by the coronavirus.
Caixin’s May composite PMI, which includes both manufacturing and services activity, rose to 42.2 from 37.2 the previous month.
Factory activity shrank less sharply in May, but still posted the second largest slump since February 2020, suggesting a recovery remains fragile.
The Caixin PMI is compiled by S&P Global from responses to questionnaires sent to purchasing managers in China.