China’s service sector remains a bright spot as factory data disappoints


Services activity in China remained well in growth territory in April, as a private survey showed a weaker reading from March.

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Services activity in China remained well in growth territory in April, although a private survey showed a weaker reading from March.

THE Caixin/S&P Global Services Purchasing Managers Index fell to 56.4 in April from 57.8 the previous month. This is still the second highest figure recorded since November 2020.

It is also the fourth consecutive month above the 50 mark that separates growth and contraction.

Caixin’s latest reading suggests services activity is still “recovering rapidly,” according to Wang Zhe, senior economist at Caixin Insight Group.

“There was still a lot of optimism in the services sector in April, with the reading of expectations for future activity remaining well above the neutral level of 50.0,” Wang wrote, adding that “companies have continued to express confidence in a better market environment as the impact of Covid diminished.”

The expansion in new services orders also eased slightly from the previous month’s reading, which was the highest in 28 months. New business from overseas also grew at a historically high rate, despite moderating growth from March, Caixin said.

The continued expansion of services activity in China contrasts with the disappointing factory activity reported earlier in the week.

THE Caixin China Manufacturing PMI fell to 49.5 in April, marking the first reading below 50 in three months.

New orders fell, further evidence of a short-lived improvement in factory output in February, when the reading hit its highest level in eight months.

“Higher activity levels were often linked to a return to more normal operating conditions as the impact of the pandemic continued to fade, leading to firmer demand and higher customer numbers,” he said. said Chris Williamson, chief economist at S&P Global Market Intelligence, of the Caixin plant activity data. .

THE National Bureau of Statistics Manufacturing PMI the reading also missed expectations and fell into contractionary territory with a reading of 49.2 in April from 51.9 in March.

The recovery has yet to find stability

A separate reading of Friday’s Caixin survey also showed a weaker albeit sustained expansion in overall business activity.

Caixin China’s overall composite purchasing managers’ index fell from 54.5 in March to 53.6 in April, marking the slowest growth rate since January this year.

“While the recovery continued to be largely driven by the service sector, manufacturers and service providers noted lower production increases compared to March,” Caixin said in its Friday statement.

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Wang de Caixin noted the discrepancy between factory data and service data.

“It should be noted that manufacturing and services activity diverged, with employment and manufacturing input costs contracting significantly,” Wang wrote.

“It remains to be seen whether the economic rebound is sustainable after a short-term release of pent-up demand, with a number of indicators indicating that the recovery has yet to find a stable footing,” he wrote. .

Downside risk to growth

Earlier in the week, S&P noted the latest disappointments in China’s manufacturing activity data. potential downside risks to economic growth in the second quarter.

“April’s services sector PMI data will be of greater importance in determining the near-term path of GDP, given the sector’s larger share of the economy and the role of the resurgence in government spending. consumption in services in the latest recovery,” S&P wrote.

“On a more positive note, the drop in prices recorded by the survey suggests that mainland China does not appear to be exporting higher inflationary pressures to other economies,” he said.

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