China's services activity contracts for third straight month

China's services activity contracts for third straight month

BEIJING Reuters -- China's services activity contracted for a third consecutive month in May despite the easing of some COVID lockdowns in Shanghai and neighbouring cities, a private business survey showed on Monday that the company's services activity contracted for a third consecutive month.

The PMI of Caixin services purchasing managers rose to 41.4 in May from 36.2 in April, edging up as authorities began to roll back some of the strict restrictions that have plagued the financial city of Shanghai.

The reading was well below the 50 point mark that separates growth from contraction on a monthly basis.

Under the government's zero-COVID policy, the services sector, which accounts for about 60% of China's economy and half of urban jobs, is likely to continue, with contact-intensive sectors such as hotels and restaurants bearing the brunt of the fallout, according to analysts.

The services sector is still in a downward spiral, according to an official survey on Tuesday.

New business, including new export orders, fell for the fourth month in May, as restrictions on mobility kept customers at home and disrupted operations, according to the Caixin survey.

Services firms slashed their payrolls at a higher rate, with a sub-index for employment at 48.5, the lowest since February last year, and down from 49.3 the previous month.

China's jobless rate had risen to 6.1% in April, its highest since February 2020 and well above the government's 2022 target of less than 5.5%, according to official data.

The employment measure has remained in contraction since the beginning of the year. The labour market is affected by the epidemic. Enterprises were not motivated to increase hiring. Wang Zhe, Senior Economist at Caixin Insight Group, said outstanding business backlogs in the services sector grew further.

China's economic activity fell sharply in April as the country grappled with the worst COVID 19 outbreak since 2020.

China's cabinet has announced a package of 33 measures covering fiscal, financial, investment and industrial policies in a politically sensitive year, although analysts say the official GDP target of around 5.5% will be hard to achieve without easing the zero-COVID strategy.

It is necessary for policymakers to pay more attention to employment and logistics. Wang from Caixin Insight Group said that they should also give subsidies for people who have been affected by COVID, and that they will help to stabilize market entities and protect the labour market.

The May composite PMI of Caixin, which includes both manufacturing and services activity, rose to 42.2 from 37.2 the previous month. In May, factory activity fell less sharply but still posted the second largest slump since February 2020, suggesting a recovery remains fragile.

The PMI of Caixin was compiled by S&P Global from responses to questionnaires sent to purchasing managers in China.