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China’s Covid-Hit Services Sector Posts Steep Drop in Activity

The pessimistic findings from the survey, which focuses more on small firms in coastal regions, are in line with the government’s official PMI


China's economy has suffered amid ongoing lockdowns, the government is working to boost job growth.
Covid lockdowns in cities such as Shanghai, seen here, have hammered small businesses far and wide in China. Photo: Reuters.

 

Data released on Thursday show China’s services sector activity contracted in April at the second-steepest rate on record, as businesses and consumers were battered by coronavirus pandemic restrictions.

The Caixin services purchasing managers’ index (PMI) stood at 36.2 in April, the second-lowest since the survey began in November 2005 and down from 42 in March.

The index hit a record low of 26.5 in February 2020 during the onset of the pandemic. The 50-point mark separates growth from contraction on a monthly basis.

The pessimistic findings from the survey, which focuses more on small firms in coastal regions, are in line with the government’s official PMI, pointing to deterioration in a sector that accounts for about 60% of the economy and half of urban jobs.

A sub-index for new business stood at 38.4, also the second-lowest on record and down from 45.9 the previous month.

 

China Covid-19 Surge

Respondents said the escalation of anti-Covid-19 measures to contain the spread of cases weighed heavily on customer demand at the start of the second quarter.

Employment also declined for the fourth straight month in April, although the drop was slight compared with sizeable falls in activity.

Input costs meanwhile rose at a solid pace but efforts by services firms to attract more business amid lacklustre demand drove a drop in prices charged, highlighting rising cost pressures facing services providers.

“Demand was under pressure, external demand deteriorated, supply shrank, supply chains were disrupted, delivery times were prolonged, backlogs of work grew, workers found it difficult to return to their jobs, inflationary pressures lingered, and market confidence remained below the long-term average,” said Wang Zhe, senior economist at Caixin Insight Group.

Caixin’s April composite PMI, which includes both manufacturing and services activity, slumped to 37.2 from 43.9 from the previous month.

 

  • Reuters, with additional editing by George Russell

 

 

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George Russell

George Russell is a freelance writer and editor based in Hong Kong who has lived in Asia since 1996. His work has been published in the Financial Times, The Wall Street Journal, Bloomberg, New York Post, Variety, Forbes and the South China Morning Post.

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