China's services sector grows faster than expected in October

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China's services sector grows faster than expected in October

According to a private survey on Wednesday, activity in China's services sector increased faster in October, due to strong demand, although rising inflationary pressures weighed on business confidence for the year ahead.

In October, Caixin Markit services Purchasing Managers' Index PMI went up to 53.8, which is 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 that focuses more on small firms in coastal regions stood in contrast to an official survey that showed that the expansion in the services sector lost some steam.

Analysts say that the services sector, which has been slower to recover from the coronaviruses, is more vulnerable to sporadic COVID 19 outbreaks in the country, which is clouding the outlook for the much anticipated rebound in consumption in the months to come.

China's leisure and tourism businesses are having heat from the country's strategy to contain infections since late October, as they feel the heat from the country's zero tolerance COVID-19 strategy to contain infections. Cities with cases, or those with concerns about the virus, have closed entertainment venues, restricted tourism or delayed cultural events.

In September, a sub-index for new business edged up to 54.1 from 53.1, as a result of rising export orders that contracted the month before.

It was the 16th month in a row that resulted in a increase in costs of labour and raw material, which went up in Input prices for the 16th month in a row. The costs of firms were charged to the highest in three months, which allowed firms to pass some of the costs to consumers.

The survey showed that business confidence in four months was the lowest in four months, due to inflationary pressures and concerns about supply chains.

Caixin's October composite PMI was up to 51.5 from 51.4 the previous month, which includes both manufacturing and services activity.

The demand recovery and supply returned to an early start. The employment was more or less stable. Wang Zhe, a senior economist at Caixin Insight Group said that the gauge for prices was high.

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