BEIJING, (Reuters) – China’s September services activity contracted for the first-time in four months. This was due to COVID-19 restrictions that have weakened already fragile demand and lowered business confidence, according to a private sector survey.
Caixin’s services purchasing managers index (PMI), fell to 49.3 in August from 55.0 because COVID containment measures had disrupted supply-demand and limited national travel.
A survey by the government published last week showed that services activity is slowing. However, its readings remain slightly above the 50 point mark which separates growth and contraction on a monthly basis.
China’s economy showed signs that it is improving in August, with faster than expected growth in retail sales and factory output. However, the country is still being held back due to COVID curbs and worsening property slump.
Wang Zhe, senior economist at CaixinInsight Group, stated that “the current pandemic situation remains severe and complex, with the negative impact COVID controls still being pronounced on the economy.”
Wang stated that policy implementation should be focused on encouraging employment and granting subsidies as well as increasing demand and market confidence through sending policy signals.
Caixin’s survey revealed that services companies are struggling with slow demand, shrinking production, and rising costs. However, foreign orders are rebounding.
The September sub-index of the new business index saw the first fall in four months. New export business also expanded for the first times since December 2021.
The sub-index revealed that input prices have increased every month since June 2020. This is mainly due to higher labour and raw material costs.
This led to services firms reducing their payrolls at an even faster rate. The sub-index for employment was at 48.5 for the ninth consecutive month, down from 48.9 in Aug.
The market was less optimistic, as there are no signs that COVID containment measures would be relaxed in the near future.
Many Chinese cities advised residents not to travel for public holidays. This is in addition to COVID policies which have placed tens of thousands of people under lockdown, causing a rising economic burden.
Beijing is intensifying its efforts to support the economy by establishing a relending facility of 200 billion Yuan ($28.12 Billion) for equipment upgrades and the relaxation of mortgage rate floor floors.
The September composite PMI by Caixin, which measures both manufacturing activity and services activity, dropped to 48.5, from 53.0 in the previous month. The September decline in factory activity was more pronounced, which suggests a slowing recovery.
S&P Global (NYSE : SPGI) compiles the Caixin PMI based on responses to questions sent out to purchasing managers in China.
($1 = 7.1135 Chinese yuan)