China’s Oct services activity expands at faster clip – Caixin PMI

Activity in China‘s services sector expanded at a faster pace in October, buoyed by robust demand, although rising inflationary pressures weighed on business confidence for the year ahead, a private survey showed on Wednesday.

The Caixin/Markit services Purchasing Managers’ Index (PMI) rose to 53.8 in October – the highest since July – from 53.4 in September. The 50-point mark separates growth from contraction on a monthly basis.

The improved readings in the private survey, which focuses more on small firms in coastal regions, stood in contrast with an official survey, which showed the expansion in the services sector lost some steam.

Analysts say the services sector, which has been slower to recover from the pandemic than manufacturing, is more vulnerable to sporadic COVID-19 outbreaks in the country, clouding the outlook for the much anticipated rebound in consumption in the months to come.

China’s leisure and tourism businesses have been feeling the heat from the country’s zero tolerance COVID-19 strategy to contain infections since late October. Cities with cases, or those with concerns about the virus, have closed entertainment venues, restricted tourism or delayed cultural events.

A sub-index for new business edged up to 54.1 from 53.1 in September, bolstered by rising export orders that contracted the month before.

Input prices also expanded for the 16th month in a row and at the fastest pace since July due to rising labour and raw material costs. Solid demand allowed firms to pass some of the costs to consumers, driving an uptick in prices that charged to the highest in three months.

However, persistent inflationary pressures and concerns about supply chains drove business confidence to the lowest in four months, the survey showed.

Caixin’s October composite PMI, which includes both manufacturing and services activity, edged up to 51.5 from 51.4 the previous month.

“Supply and demand recovery both retained momentum. Employment was more or less stable. Gauges for prices were high,” said Wang Zhe, senior economist at Caixin Insight Group.

“Policymakers should not only take effective measures to stabilise commodity supplies and prices, but also pay close attention to downstream firms, especially small and midsize ones.”

Authors: Stella Qiu, Ryan Woo, Reuters

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