BEIJING (Reuters) – A strong rebound in China’s services sector eased slightly in August amid fresh COVID-19 flare-ups but business confidence rose to a nine-month high in a rare bit of good news for the struggling economy, a private survey showed on Monday.
The Caixin services purchasing managers’ index (PMI) dipped to 55.0 from a 15-month high of 55.5 in July, but remained well in expansionary territory. The 50-point mark separates growth from contraction on a monthly basis.
The reading was in line with China’s official survey, released last week, which showed expansion in the services sector slowed, possibly due to protracted COVID disruptions and the impact of the worst heatwaves in decades.
Total new orders rose for the third month in a row, but foreign demand remained subdued with the new export business sub-index shrinking for the eighth straight month amid continued curbs on travel.
Despite the rise in new business, companies again shed staff. The services sector is one of the most vulnerable industries under Beijing’s zero-COVID policy and has also been hit by a sharp slump in the property market.
Service providers continued to grapple with rising costs, with the sub-index of input prices rising at the quickest clip in four months. Companies cited rising prices for labour, raw materials, food and marketing, but were only able to pass on a fractional increase in the fees they charged.
The world’s second-biggest economy narrowly escaped a contraction in the second quarter due to widespread COVID lockdowns, and nascent signs of a recovery early this summer have quickly fizzled out amid fresh virus outbreaks and mobility restrictions. Nationwide railway travel hit an eight-year trough in August.
Analysts expect even tighter anti-virus measures heading into the key Communist Party Congress in October. Several megacities have tightened containment measures this week.
“With the increase in adverse factors such as recurring COVID-19 cases and natural disasters leading to a sluggish job market and shrinking consumer demand, the government should step up measures such as additional subsidies and assistance for low-income groups,” said Wang Zhe, senior economist at Caixin Insight Group.
Nevertheless, business confidence remained firmly in positive territory in August as companies expected conditions to gradually normalise.
Caixin’s August composite PMI, which includes both manufacturing and services activity, dropped to 53.0 from 54.0 in July, with services growth offsetting an unexpected contraction in factory activity.
The Caixin PMI is compiled by S&P Global from responses to questionnaires sent to purchasing managers in China.
(Reporting by Liangping Gao, Ellen Zhang and Ryan Woo; Editing by Kim Coghill)
