China May Services Activity Contracts for the Third Month in a Row: Caixin

China May Services Activity Contracts for the Third Month in a Row: Caixin

Web Desk
June 6, 2022

China’s services activity declined for the third consecutive month in May, indicating a gradual recovery ahead despite.
Lifting of several COVID lockdowns in Shanghai and neighboring areas.
China’s nationwide survey-based unemployment rate rose to 6.1 percent in April.

BEIJING – According to a private company survey released on Monday, China’s services activity declined for the third consecutive month in May, indicating a gradual recovery ahead despite the lifting of several COVID lockdowns in Shanghai and neighbouring areas.

The Caixin services purchasing managers’ index (PMI) rose to 41.4 in May from 36.2 in April, edging up slightly as authorities began to roll back some of the strict restrictions that have paralysed the financial city of Shanghai and roiled global supply chains.

On a monthly basis, however, the reading remained considerably below the 50-point threshold that distinguishes expansion from contraction.

According to analysts, the government’s zero-COVID policy is likely to exacerbate weakness in the services sector, which contributes for roughly 60% of China’s economy and half of urban jobs, with contact-intensive industries such as hotels and restaurants facing the brunt of the repercussions.

An official poll released on Tuesday also revealed that the services sector was still contracting. China services activity

According to the Caixin poll, new business, including new export orders, declined for the fourth consecutive month in May as mobility restrictions kept clients at home and disrupted operations.

As a result, service firms cut payrolls at a faster pace, with a sub-index for employment at 48.5, the lowest since February last year and down from 49.3 the previous month.

According to official data, China’s nationwide survey-based unemployment rate rose to 6.1 percent in April, the highest since February 2020 and well beyond the government’s 2022 target of less than 5.5 percent.

“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,” said Wang Zhe, Senior Economist at Caixin Insight Group.

The Chinese economy slowed considerably in April as the country dealt with the largest COVID-19 epidemic since 2020.

China’s cabinet recently announced a package of 33 measures covering fiscal, financial, investment, and industrial policies to help stabilise the situation in a politically sensitive year, though analysts say the official GDP target of around 5.5 percent will be difficult to achieve without easing the zero-COVID strategy.

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