According to a private-sector business survey released on Saturday, China’s services activity shrank in September for the first time in four months as COVID-19 restrictions weakened the country’s already brittle demand and lowered investor confidence.

The COVID containment measures disrupted supply and demand and limited domestic travel, resulting in a decrease in the Caixin services purchasing managers’ index (PMI) from 55.0 in August to 49.3 today.

Services activity was also slowing down, according to an official survey released last week, but its reading was still slightly higher than the 50-point threshold that separates monthly growth from contraction.

With faster-than-anticipated growth in factory output and retail sales in August, China’s economy showed signs of improvement, but is being constrained by ongoing COVID curbs and a worsening real estate slump.

“The current pandemic situation is still severe and complex, and the negative impact of COVID controls on the economy is still pronounced,” said Wang Zhe, senior economist at Caixin Insight Group.

“Policy implementation should focus on promoting employment, granting subsidies, as well as boosting demand and market confidence by sending policy signals,” said Wang.

The Caixin survey revealed that while foreign orders are recovering, services companies are still struggling with weak demand, declining production, and rising costs.

In September, the new business sub-index fell for the first time in four months, though new export business actually increased for the first time since December 2021.

The sub-index revealed that since June 2020, input prices have increased every month, primarily due to rising labor and raw material costs.

This caused payroll cuts at services firms to accelerate, with the employment sub-index falling from 48.9 in August to 48.5, which is in contraction territory for the ninth consecutive month.

The market was much less confident due to the lack of any indications that COVID containment measures will ease in the near future.

In addition to the COVID policies that have kept tens of millions of people under lockdown and caused an increasing economic cost, many Chinese cities advised residents to avoid making unnecessary trips for the public holidays.

With a relending facility worth 200 billion yuan ($28.12 billion) for equipment upgrades and a relaxation of mortgage rate floors, Beijing is stepping up efforts to support the economy.

Caixin’s composite PMI for September, which measures both manufacturing and services activity, decreased from 53.0 to 48.5. September saw a sharper decline in factory activity, indicating a shaky recovery.

S&P Global compiles the Caixin PMI from responses to inquiries sent to Chinese purchasing managers.

(Adapted from USNews.com)

Categories: Economy & Finance, Entrepreneurship, Regulations & Legal, Strategy, Sustainability