China’s services sector returned to growth in September as Covid-19 resurgence eased – private survey

China’s services sector returned to growth in September as activities recovered rapidly after COVID-19 outbreaks in East China’s Jiangsu province were brought under control.

The Caixin/Markit services Purchasing Managers’ Index (PMI) jumped to 53.4 from 46.7 in August, pulling away from the lowest level since the height of the pandemic last year. The 50-point mark separates growth from contraction on a monthly basis.

The improvement comes in line with findings in an official survey last week which also showed the services industry returned to activity growth. China’s official survey focuses on large-sized state-owned companies, while Caixin/Markit survey mostly track small-sized and private firms.

Earlier data showed that China Caixin manufacturing PMI rose by 0.8 percentage point to 50 in September. The recovery in both manufacturing and services sectors boosted Caixin General Composite Index to 51.4, rising by 4.2 percentage point from the month before, indicating that overall business activities were back into moderate expansion.

Sub-indexes of new business, product prices and employment all rebounded into expansionary territory in September.

Most services companies in the survey said as epidemic situation eased, market is warming and the number of customers increased, leading to a recovery in their sales, according to the survey.

However, the sub-index for new export orders contracted again last month and hit the lowest level in seven months, due to worsening pandemic overseas.

Recovering market demand also boosted employment, with the sub-index tracking employment in the services sector getting back to growth, although it only grew moderately, showed the survey.

Input prices increased for the 15th straight month in September and rose at a faster pace, driven by rising labour, freight and raw material costs, the survey found.

The survey found that companies in the services sector mostly remained optimistic about business outlook in the next one year, with the sub-index tracking service business expectations improving slightly, but it remained lower than long-term average, the survey found.

As Covid-19 outbreaks in September were less serve than in August, services sector posted a rapid recovery, and the recovery in the manufacturing activities was more moderate and the economy still faces great downward pressure, said Wang Zhe, senior economist at Caixin Insight Group.

“In the coming months, the government should focus on improving epidemic prevention and control and alleviating supply-side pressure,” said Wang.

“It should also find a balance among multiple objectives, such as promoting employment, holding raw material prices stable, ensuring a stable and orderly supply, and meeting targets for controlling energy consumption.”