China Service Sector Continues To Shrink In May

China’s service sector logged another marked contraction in May due to measures taken to contain the recent uptick in COVID-19 cases, survey results from S&P Global showed on Monday.

The Caixin services Purchasing Managers’ Index rose to 41.4 in May from a 26-month low of 36.2 in April. But a score below 50.0 indicates contraction in the sector.

The pace of reduction was the second-sharpest seen since February 2020, during the initial phase of the COVID-19 pandemic.

New business dropped for the fourth consecutive month in May. The pace of reduction eased from April but remained sharp overall. New business from abroad also fell at a softer, but still marked rate midway through the second quarter.

There was a further drop in employment in May. The rate of job shedding was the fastest seen in 15 months.

The survey showed that ongoing disruption to operations led to a sustained increase in outstanding business.

Input price inflation moderated to a nine-month low in May. Companies passed on some of these additional costs through to clients in the form of higher output charges.

The degree of positive sentiment among service providers was the strongest seen in last three months. That said, overall optimism remained below the long-run series average.

Entrepreneurs overall were still confident that the Covid-19 epidemic will be brought under control, though some remained concerned about a resurgence of Covid-19 in the future, Wang Zhe, a senior economist at Caixin Insight Group said.

At 42.2 in May, the composite output index rose from 37.2 in April to signal a softer, but still sharp, decline in overall Chinese business activity.

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