China services activity slows in January as COVID 19 cases spike

China services activity slows in January as COVID 19 cases spike

In January, activity in China's services sector increased at the slowest pace in five months as a surge in local COVID 19 cases and containment measures hit new business and consumer sentiment while employment fell, according to a private survey on Monday. The PMI of Caixin Markit Services fell to 51.4 in January, the lowest since August, from 53.1 in December. The 50 point mark separates growth from contraction on a monthly basis.

The soft reading is likely to reinforce market expectations that policymakers need to roll out more support measures to stabilise the faltering economy. China's central bank has already started to cut interest rates and pump more cash into the financial system to bring borrowing costs down, and further easing steps are expected to be taken in the coming weeks.

A sub-index for new business in the survey was at 51.1 in January, a month slower than the long-run series average and below 52.5 in the previous month.

Some services providers attribute the slower growth to the COVID 19 outbreaks. In addition, rising cases abroad weighed on foreign demand, driving new export orders into contractionary territory for the first time in four months.

It was the first decline in the data series since August last year, which resulted in a renewed fall in employment, according to the survey.

In December and January, the resurgence of COVID 19 in several regions, such as Xian and Beijing, forced local governments to tighten epidemic control measures, which restricted production, transportation and sales of goods, said Wang Zhe, senior economist at Caixin Insight Group.

This year, policymakers should make stability their focus. They should prioritize employment and improve the structure of the economy. The world's second largest economy got a strong start in 2021, rebounding from 2020's pandemic-induced slump but losing steam in the early summer, weighed by growing debt problems in the property market and COVID- 19 outbreaks.

The survey showed inflationary pressures persisted for China's services firms. In January, input costs went up at a sharper rate, while prices rose to a three-month high as some companies passed higher costs to customers.

Although still high, confidence towards the year ahead fell to a 16 month low amid uncertainty about the pandemic.

Caixin's January Composite PMI, which includes both manufacturing and services activity, was at 50.1, the lowest since August and down from 53 the previous month.

China's economy grew 4.0 per cent in the fourth quarter from a year ago, its weakest expansion in one and a half years.