The services sector in China returns to growth for the first time since January. The sector showed growth last May as the economy recovers from the coronavirus outbreak.
However, a private survey showed that employment and overseas demand remained weak.
The Caixin/Markit services Purchasing Managers’ Index (PMI) increased to 55.0 in April from 44.4 in April. It reached the highest level since late 2010. The 50-mark splits growth from contraction on a monthly basis.
The growth of the services sector in China is attributed to a sharp increase in domestic new business though export orders dropped for the fourth month in a row. Moreover, the services sector in China continues to be a crucial job generator and accounts for about 60% of the economy.
Measurements for employment also continued to contract but not at a fast pace. “Employment in the services sector remained worrisome,” said Wang Zhe, senior economist at Caixin Insight Group.
Beijing announced that its priority is to prevent mass unemployment, with a target to produce over 9 million urban jobs this year.
China’s economy
China’s economy fell by 6.8% in the first quarter from a year earlier, the first contraction since quarterly records started. For experts, it will take months before everything goes back to where the economy was before the coronavirus pandemic took place.
The government said in late May it was not releasing an annual growth target, for the first time since 2002, due to uncertainties brought by the coronavirus crisis.
“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,” said Wang.
Caixin’s manufacturing PMI revealed a return to growth in May but at a slower pace than the services sector due to low global demand.
For the sixth straight month in May, prices from service providers were reduced while input prices dropped slightly.
The private sector survey, which focused on small, export-oriented companies, reflect an official one that highlighted the quickening momentum in the services and construction sectors.
Meanwhile, Caixin’s composite manufacturing and services PMI rose to 54.5 in May from 47.6 in April.
“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.
Beijing increased its fiscal spending to shore up the economy, which some analysts say is almost 5% of China’s gross domestic product (GDP). The government also worked on monetary support, including reducing some of its key interest rates to cut borrowing costs for businesses.
China's economy
China reported that its economy already felt the impact of the coronavirus when its first quarter GDP experienced contraction.
Data from the National Bureau of Statistics of China showed that the first quarter GDP contracted by 6.8% in 2020 from a year ago.
Analysts consulted by Reuters gave forecasts for China, saying its economy, particularly its GDP, would decline by 6.5% in the January to March quarter, compared to a year ago.
These predictions from 57 analysts varied from a 28.9% contraction to a 4% expansion. China’s economy rose by 6% in the previous quarter, from September to December 2019.
While the headline GDP figure was not a surprise, the rest of the data did not look good for the months ahead, said Bo Zhuang, chief China economist at TS Lombard.
“What is really important was that before March, everybody was expecting China to have a V-shaped recovery because it was actually (about) China supply disruption, but now we are seeing this demand shock,” Zhuang told CNBC.
