The impact of the spread of the epidemic in many places in China and the tightening of prevention and control measures are still ongoing. In October, the service industry continued the contraction trend in September, and the prosperity further declined.
According to the latest data released by Caixin on Thursday (November 3), the Caixin China General Service Industry Business Activity Index (Services PMI) recorded 48.4 in October, 0.9 percentage points lower than September, and fell to 48.4 for the second consecutive month. The contraction range was the lowest since June.
The Caixin China Manufacturing PMI previously announced in October rebounded by 1.1 percentage points to 49.2, still in the contraction range; however, dragged down by the service industry, the Caixin China Composite PMI fell by 0.2 percentage points to 48.3, the lowest since June.
The trend of Caixin China’s manufacturing PMI is not consistent with the National Bureau of Statistics of China, while the trend of service industry and comprehensive PMI is the same as that of the National Bureau of Statistics. Earlier, the National Bureau of Statistics of China announced that the manufacturing PMI fell by 0.9 percentage points to 49.2 in October, and the service PMI fell by 1.9 percentage points to 47.9, dragging down the composite PMI by 1.9 percentage points to 49.0, which fell below the critical point for the first time since June.
From the perspective of sub-data, due to the impact of the epidemic, China’s service industry production and demand both contracted for the second consecutive month, the new orders index rose slightly in the contraction range, and the new export orders index fell again after a brief expansion in September. It fell below the line of prosperity and decline and was the lowest since June, indicating weaker external demand in the service industry.
Employment in China’s services sector expanded for the first time this year despite weak supply and demand. The employment index rose to expansionary territory in October, the highest since June 2021. The Chinese companies interviewed reported that this was related to capacity expansion and accelerated sales. However, due to the epidemic, the backlog index was above the threshold for the third consecutive month.
Supported by rising costs such as oil and wages, the service sector input price index remained in the expansionary range in October, but declined slightly. The sales side continued to be affected by rising costs, and the ex-factory price index rose above the critical point, recording the highest in nearly eight months, slightly exceeding the long-term average since 2005.
Business confidence in the services sector improved slightly, with an index of business expectations up from a six-month low in September, but still below the long-term average. Many Chinese companies believe that there will be a strong post-pandemic recovery in the coming year, but some are worried that the uncertainty of the epidemic and prevention and control measures may have an impact on business activities and market demand.
Wang Zhe, a senior economist at Caixin Think Tank, said that the prosperity of the manufacturing and service industries continued to decline in October, supply and domestic and foreign demand all contracted, and corporate costs rose. At present, the internal and external situation is still complex and severe, and the unfavorable factors affecting economic development have increased. In particular, the spread of the epidemic in many places in China has significantly restricted both supply and demand, and the foundation for economic recovery is not yet solid.
Wang Zhe said that the report of the 20th National Congress of the Communist Party of China emphasized that “development is the first priority for the party to govern and rejuvenate the country”, which will help stabilize long-term market expectations; the current demand and employment are still under pressure, and corresponding policies to promote employment and stabilize domestic demand need to be strengthened. As mentioned in the report of the 20th National Congress of the Communist Party of China, “Strengthen the coordination and cooperation of fiscal policy and monetary policy, focus on expanding domestic demand, and enhance the fundamental role of consumption in economic development and the key role of investment in optimizing the supply structure.”