China’s services activity falls at second-sharpest rate on record | Economy

Private-sector index shows biggest contraction in activity since start of the pandemic.

China’s services sector has seen activity shrink at the second-sharpest rate on record in April, a private-sector survey showed, in the latest sign of the mounting economic toll of Beijing’s zero-tolerance pandemic strategy.

The Caixin services purchasing managers’ index (PMI) fell to 36.2 in April, the second-lowest since the survey began in November 2005 and down from 42 in March.

The index’s biggest contraction on record occurred in February 2020 at the start of the pandemic, when the index hit 26.5.

The private-sector survey released on Thursday also showed employment declined for the fourth straight month in April, although the drop was marginal, compared with major falls in activity.

The pessimistic findings from the survey, which focuses more on small firms in coastal regions, are in line with the government’s official PMI, pointing to the fast deterioration in a sector that accounts for about 60 percent of the economy and half of urban jobs.

The results come as China’s financial capital Shanghai approaches its sixth week under lockdown and authorities in Beijing ramp up restrictions in response to growing COVID-19 outbreaks there.

More than 40 cities are under full or partial lockdowns or have implemented district-based controls that restrict residents’ mobility, according to financial services firm Nomura.

‘Weaker sales and higher costs’

“The manufacturing sentiment is still heavily impacted by the potential lockdowns and hence supply chain disruptions,” Gary Ng, a senior economist at Natixis in Hong Kong, told Al Jazeera.

“Even though mobility has improved slightly in May, it is still at a relatively low level compared with last year. This shows that firms will still be worried about weaker sales and higher costs, meaning pressure on economic growth.”

The International Monetary Fund last month cut its 2022 economic growth forecast for China to 4.4 percent, down from 4.8 percent in January. Beijing has targeted growth of about 5.5 percent for this year, a goal many economists analysts believe it is unlikely to achieve.

China’s Politburo, the top decision-making body, last week pledged to roll out measures to help industries and small firms battered by the pandemic, although analysts say any such measures are likely to have a limited impact as long as the country sticks to its ultra-strict “dynamic zero COVID” policy.