China's services sector activity contracts at 2nd-steepest rate in a year

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China's services sector activity contracts at 2nd-steepest rate in a year

BEIJING Reuters -- China's services sector activity contracted at the second-steepest rate on record in April as COVID curbs halted the industry, leading to a reduction in new business and employment, a private sector survey showed on Thursday.

In April, the PMI of Caixin services purchasing managers was at 36.2, the second-lowest since the survey began in November 2005 and down from 42 in March. The index hit a new low of 26.5 in February 2020, which was a record low during the onset of the epidemic.

The 50-point mark separates growth from contraction on a monthly basis.

The survey, which focuses more on small firms in coastal regions, shows the fast deterioration of a key sector that accounts for 60% of the economy and half of urban jobs, and is in line with the government's official PMI.

A sub-index for new business stood at 38.4, the second-lowest on record and down from 45.9 the previous month, with services firms reporting the escalation of measures to contain the spread of COVID cases weighing heavily on customer demand at the beginning of the second quarter.

Employment declined for the fourth month in April, although the drop was small compared to the sizeable falls in activity.

Input costs rose at a solid pace but efforts by services firms to attract more business due to lacklustre demand led to a drop in prices charged, highlighting rising cost pressures facing services providers.

Demand was under pressure, external demand deteriorated, supply chain was disrupted, delivery times were prolonged, workers found it hard to return to their jobs, inflationary pressures lingered, and market confidence remained below the long-term average, said Wang Zhe, senior economist at Caixin Insight Group.

The government should support businesses in industries that are heavily affected by the outbreaks to stabilize market expectations. Many company workers, gig workers and low-income groups have watched their incomes shrink and their lives become more difficult during the recent outbreaks, so the government should give them subsidies. The composite PMI for manufacturing and services activity in April slumped to 37.2 from 43.9 from the previous month.

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