China’s services activity rebounded in May as the country’s COVID-19 flare-ups were brought under control combined with eased anti-epidemic restrictions, a private sector survey showed on Monday.

The Caixin services purchasing managers' index (PMI) rose to 41.4 in May from 36.2 in April, the second lowest reading since March 2020, indicating that the production and business activities across the services sector remain affected by the epidemic, but the impact has been relieved.

The sub-indices of both business activity and new orders in May rebounded from their April lows, but remained below the 50-level mark that separates expansion from contraction, the second lowest reading since March 2020.

Surveyed companies said that the decrease in business activities was related to recent preventive and control measures such as temporary closures and movement restrictions, and the epidemic continued to suppress customer demand.

Lower operational requirements led to a further drop in services sector employment in May. The related index fell in contraction territory to the lowest since March 2021, reflecting how the epidemic has weighed on the job market and is leading to companies being less willing to take on new recruits.

Average input costs faced by services providers in China increased again in May, but the rate of inflation moderated to a nine-month low. According to surveyed enterprises, with the higher cost linked to greater prices of labor, raw materials, food, energy and transportation, they passed on some of these additional costs through to clients in the form of higher output charges. 

Business expectations regarding the 12-month outlook for output improved in May, picking up to its highest for three months, with a number of firms hoping for a strong recovery once the virus is contained and restrictions are lifted.

The negative impact of the current outbreak on the overall economy may exceed that of 2020 given the lingering pressure faced by enterprises, Wang Zhe, a senior economist at Caixin Insight Group, said, noting that ensuring employment and smooth logistics should become top priority.

“Subsidies for people whose income has fallen due to the epidemic should also be on the agenda,” Wang added.

Global Times