China’s Services Sector Reports Return to Growth

(C) Reuters.

By Gina Lee

Investing.com – China’s services sector returned to growth for the first time in five months in May, but a complete economic recovery from the COVID-19 virus could still take time.

The Caixin/Markit services Purchasing Manager’s Index (PMI) for May was 55, the highest reading in almost a decade. The figure was well above the reading of 44 for April, as well as above the 50-mark indicating expansion.

This return to growth was driven by rising domestic new business despite export orders falling for the fourth consecutive month.

The survey, which focuses more on small, export-oriented companies in the private sector, corroborate an official survey released earlier in the week which indicated increasing momentum in the services and construction sectors.

The National Bureau of Statistics announced on Sunday that the Caixin/Markit manufacturing PMI for May was 50.7, indicating expansion in the manufacturing sector as well. But weak global demand, as countries continue to be impacted by COVID-19, slowed growth in the manufacturing sector comparative to services.

“Demand for services recovered more strongly than that for manufacturing, which was more constrained by sluggish exports amid the ongoing impact of the pandemic’s spread outside China,” Wang Zhe, senior economist at Caixin Insight Group, told Reuters.

Caixin’s composite manufacturing and services PMI, also released on Wednesday, was 54.5 in May compared to April’s 47.6.

But the return to growth in both sectors is overshadowed by the economy shrinking 6.8% in the first quarter year-on-year, as well as the government not setting an annual growth target for the first time in almost two decades during the National People’s Congress in late May.

“In general, the improvement in supply and demand was still not able to fully offset the fallout from the pandemic, and more time is needed for the economy to get back to normal,” said Wang.

Meanwhile, the current biggest concern in the country is unemployment with the survey indicating that employment continued to increase, albeit at a slower pace.

The government has pledged to create over 9 million urban jobs this year to prevent mass unemployment.

“Employment in the services sector remained worrisome,” added Wang.