China May service contracts for the third consecutive month

Employees are seen silhouetted at a restaurant following a ban on dine-in services amid the outbreak of the coronavirus disease (COVID-19) in the central business district (CBD) of Beijing, China, 2 June 2022. REUTERS/Tingshu Wang

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BEIJING, June 6 (Reuters) – China’s service activities shrank for the third straight month in May, pointing to a slow recovery despite the easing of some COVID lockdowns in Shanghai and neighboring cities, a private business survey showed on Monday.

Caixin’s Services Purchasing Managers’ Index (PMI) rose to 41.4 in May from 36.2 in April, rising slightly as authorities began lifting some of the tough restrictions that have paralyzed financial hub Shanghai and disrupted global supply chains to have.

However, the reading remained well below the 50-point mark that separates growth from contraction on a monthly basis.

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Analysts say weakness in the service sector, which accounts for about 60% of China’s economy and half of city jobs, is likely to persist under the government’s zero-COVID policy, with contact-intensive sectors like hotels and restaurants bearing the brunt.

An official survey on Tuesday also showed that the service sector is still in contraction.

The Caixin survey showed that new business, including new export orders, fell for the fourth straight month in May as mobility restrictions kept customers at home and disrupted operations.

This prompted service firms to cut payrolls more, with a sub-index for employment coming in at 48.5, its lowest since February last year and down from 49.3 the previous month.

Official data showed that China’s nationwide survey-based unemployment rate rose to 6.1% in April, the highest level since February 2020 and well above the government’s 2022 target of below 5.5%.

“The employment measure has been in declining territory since the beginning of this year. The effects of the epidemic have hit the labor market. Companies weren’t very motivated to increase hiring. As a result, outstanding deals (backlogs) in the service sector continued to grow,” said Wang Zhe, senior economist at Caixin Insight Group.

China’s economic activity slowed sharply in April as the country grappled with the worst COVID-19 outbreak since 2020.

In a bid to stabilize the situation in a politically sensitive year, China’s cabinet recently announced a package of 33 measures covering fiscal, financial, investment and industrial policies, although analysts say the official GDP target of around 5, 5% without easing the zero COVID strategy.

“Policymakers need to pay more attention to employment and logistics. Removing obstacles in supply and industrial chains and promoting work and production resumption will help stabilize market entities and protect the labor market,” added Wang of the Caixin Insight Group. They should also issue subsidies to people whose incomes are affected by COVID.

Caixin’s composite PMI for May, which includes both manufacturing and services activities, rose to 42.2 from 37.2 in the previous month. Factory activity fell less sharply in May but still posted the second-biggest drop since February 2020, suggesting a recovery remains fragile.

The Caixin PMI is compiled by S&P Global from questionnaire responses sent to purchasing managers in China.

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Reporting by Stella Qiu and Ryan Woo; Edited by Kim Coghill

Our standards: The Thomson Reuters Trust Principles.

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