Chinese services sector grew at fastest pace in a decade in June
China’s services sector expanded at the fastest pace in over a decade in June as the easing of lockdown measures revived consumer demand, although companies continued to cut jobs.
The Caixin/Markit services Purchasing Managers’ Index (PMI) rose to 58.4 — the highest reading since April 2010 and up from May’s 55. Any figure over 50 on the scale indicates growth compared to the previous month.
The reading shows that the Chinese services sector pulled further away from the trough hit in February as the coronavirus lockdown paralyzed the world’s second-largest economy.
The services sector accounts for about 60 per cent of the Chinese economy and half of urban jobs, and includes many small, private companies which had initially been slower to recover from the Covid-19 hit than large manufacturers.
“Overall, the Caixin catch-up bodes well for the durability of the recovery, as it indicates a more broad-based upturn in recent months,” said Pantheon Macroeconomics’ Miguel Chanco.
New business received by Chinese services firms rose to 57.3 from 55.8 in May, with the rate of growth accelerating to the fastest since August 2010.
New export business also expanded for the first time since January on firmer foreign demand, in contrast to overseas orders for manufactured goods, which continued to contract as many of China’s trading partners remained in lockdowns.
Services companies were also able to raise their prices slightly, ending a six-month streak of discounting as firms promoted sales, while business confidence for the next 12 months strengthened to a three-year high.
The rebound suggests China’s overall recovery is becoming more balanced and broader based as life slowly returns to normal in one of the world’s biggest consumer markets, though analysts believe it will take months for activity to return to pre-crisis levels.
However employment contracted for a fifth consecutive month, with corporate headcounts falling at a faster pace than in May, highlighting the huge task facing Chinese politicians this year as they attempt to stabilize the labour market.
“Although businesses were optimistic about the economic outlook, they remained cautious about increasing hiring, with employment in both the manufacturing and services sectors shrinking,” said Wang Zhe, senior economist at Caixin Insight Group.
“Addressing the employment problem requires not only macro policies to further promote work resumption, but also more targeted relief measures introduced by governments to tide companies over.”
Caixin’s composite manufacturing and services PMI picked up to 55.7 in June from 54.5 in May.
China’s economy is gradually emerging from a sharp 6.8 per cent contraction in the first quarter, with much of the country now reopened after disruptions early in the year due to strict lockdown measures.
But analysts warned that a new surge of Covid-19 cases in the capital Beijing and some surrounding cities threatens to undercut growth, with many entertainment venues remaining shut due to concerns about infections.