PMI File photo:VCG

Activity in China's services sector in February expanded at the slowest pace since September, as demand for services shrinks and employment falls amid a surge in local COVID-19 cases, a private survey showed on Thursday.

The Caixin services Purchasing Managers' Index (PMI) dropped to 50.2 in February - the lowest since September, 2021 - from 51.4 in January. The 50-point mark separates growth from contraction on a monthly basis.

The reading has been attributed to a decline in new service order which contracted for the first time in six months. Repeated overseas epidemics have also dragged down external demand, with the new export order index staying at around the 50-point mark for two consecutive months.

Weak demand and recruitment difficulties have led to a contraction in employment in the service industry, the survey showed as employment rate in the survey has been in contraction range for two consecutive months.

Inflationary pressures have eased for Chinese services firms as input costs growth slowed from January. Index for the input price index and factory gate price index of the service industry both fell in February, the survey showed.

Some services providers said that due to the reduction in purchasing activities amid the epidemic, the overall inflationary pressure has eased.

"In January and February, COVID-19 resurgence in south China's Guangxi Zhuang Autonomous Region, east China's Jiangsu Province and North China's Inner Mongolia Autonomous Region   has forced local government to strengthen epidemic control measures, which restricted production, transportation and sales of goods," said Wang Zhe, a senior economist from Caixin Insight Group said on Thursday.

"It is necessary for policymakers to prioritize improvements to employment, increase support for small and medium-sized enterprises, reduce the tax burden and financing cost of enterprises and ensure the supply and price of bulk commodities."

The survey also showed confidence toward the year ahead has bounced back in February to a three-month high. Service providers expect that the pandemic situation will improve in the year, with a rebound in customer demand, stable supply, new product launches and new market expansion contributing to the growth.

Caixin's January composite PMI, which includes both manufacturing and services activity, stood at 50.1, the same as January due to a surge in manufacturing activity.

The Caixin China Manufacturing PMI recorded 50.4 in February, up 1.3 points from January.

China's official manufacturing PMI released by the National Bureau of Statistics recorded a slight increase of 0.1 percentage points to 50.4 in February and the service PMI rose by 0.2 points to 50.5.