Economy

China’s services activity falls for the first time since May – Caixin PMI

China’s services activity falls for the first time since May – Caixin PMI
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BEIJING (Reuters) – A business survey of the private sector showed on Saturday that service activity in China contracted in September for the first time in four months, as COVID-19 restrictions hit already fragile demand and dented business confidence.

The Caixin Services Purchasing Managers’ Index (PMI) fell to 49.3 from 55.0 in August as COVID containment measures disrupted supply and demand and restricted national travel.

An official survey published last week also showed services activity slowing, although its reading remained slightly above the 50-point mark that separates growth from contraction on a monthly basis.

China’s economy showed signs of improvement in August with faster-than-expected growth in factory production and retail sales, but it was hit by prolonged COVID restrictions and property deterioration.

“The current situation of the epidemic remains serious and complex, and the negative impact of COVID controls on the economy is still evident,” said Wang Zhe, chief economist at Caixin Insight Group.

“Policy implementation should focus on boosting employment, granting subsidies, as well as boosting demand and market confidence by sending policy signals,” Wang said.

The Caixin survey showed that service companies are struggling with slowing demand, shrinking production and rising costs, despite the recovery of foreign orders.

The new business sub-index recorded its first decline in four months in September, of which new export business expanded for the first time since December 2021.

The sub-index showed that input prices have risen every month since June 2020, mainly driven by rising raw material and labor costs.

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This led to service companies cutting their salaries at an even steeper rate, with the employment sub-index at 48.5, in contraction territory for the ninth consecutive month and down from 48.9 in August.

With few signs that COVID containment measures will ease in the near term, the market was less optimistic.

Several Chinese cities have advised residents to avoid non-essential travel on public holidays, adding to COVID policies that have kept tens of millions of people under lockdown and imposed mounting economic losses.

Beijing is stepping up efforts to support the economy with a 200 billion yuan ($28.12 billion) refinancing facility to upgrade equipment and ease a minimum mortgage rate.

The Caixin Composite PMI for September, which includes manufacturing and services activity, fell to 48.5 from 53.0 the previous month. Factory activity contracted sharply in September, indicating a faltering recovery.

The Caixin PMI was compiled by S&P Global (NYSE:) from responses to questions sent to purchasing managers in China.

(1 dollar = 7.1135)

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