Service sector

China’s service sector continues to contract in May

China’s services sector recorded another sharp contraction in May due to measures taken to contain the recent surge in COVID-19 cases, survey results from S&P Global showed on Monday.

The Caixin Services Purchasing Managers’ Index rose to 41.4 in May from a 26-month low of 36.2 in April. But a score below 50.0 indicates a contraction in the sector.

The pace of reduction was the second largest seen since February 2020, during the initial phase of the COVID-19 pandemic.

New Company fell for the fourth straight month in May. The rate of reduction slowed down from April but remained sustained overall. New business from abroad also declined at a slower but still marked pace in the middle of the second quarter.

There was a further decline in employment in May. The job loss rate was the fastest in 15 months.

The survey showed that the continued disruption to operations has led to a sustained increase in ongoing cases.

The rise in input prices slowed down to its lowest level in nine months in May. Companies have passed on some of these additional costs to their customers in the form of higher exit fees.

The degree of positive sentiment among service providers was the strongest seen in the past three months. That said, overall optimism remained below the long-term series average.

Overall, entrepreneurs were still confident that the Covid-19 outbreak would be contained, although some remained concerned about a resurgence of Covid-19 in the future, said Wang Zhe, senior economist at Caixin Insight Group.

At 42.2 in May, the composite production index rose from 37.2 in April to signal a smaller, but still strong decline in overall business activity in China.

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