China's services sector grows faster than expected in October

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China's services sector grows faster than expected in October

A private survey said on Wednesday that activity in China's services sector increased faster in October, boosted by strong demand, although rising inflationary pressures weighed on business confidence for the year ahead.

The Caixin Markit services Purchasing Managers' Index PMI rose to 53.8 in October, the highest since July, from 53.4 in September. The 50 point mark separates growth from contraction on a monthly basis.

The improved readings in the private survey which focuses more on small firms in coastal regions stood in contrast to an official survey that showed the expansion in the services sector lost some steam.

Analysts say the services sector is more slower to recover from the epidemic than manufacturing, clouding the outlook for a much anticipated rebound in consumption in the months to come, as well as the services sector is more vulnerable to sporadic COVID-19 outbreaks in the country.

China's leisure and tourism businesses have been feeling the heat from the country's zero tolerance COVID 19 strategy to contain infections since late October. The cities with cases, or those with concerns about the virus, have closed entertainment venues, restricted tourism or delayed cultural events.

A sub-index for new business edged up to 54.1 in September, which was boosted by rising export orders that contracted the month before.

The price of Inputs increased for the 16th month in a row as well as the fastest pace since July due to rising labour and raw material costs. The prices charged to the highest in three months due to solid demand that allowed firms to pass some of the costs to consumers.

The survey shows that business confidence fell to the lowest in four months due to persistent inflationary pressures and concerns about supply chains.

Caixin's October composite PMI with both manufacturing and services activity went up to 51.5 from 51.4 the previous month.

Supply and demand recovery retained momentum. The employment was more or less stable. Wang Zhe, a senior economist at Caixin Insight Group, said that Gauges for prices were high.

The policymakers need not only take effective measures to stabilize commodity supplies and prices, but also pay close attention to downstream firms, especially small and midsize ones.