China Service Sector Recovers In January

China’s service sector expanded for the first time in five months at the start of the year with the rollback of pandemic related restrictions, survey results from S&P Global showed on Friday.

The Caixin services Purchasing Managers’ Index climbed to 52.9 in January from 48.0 in December. The reading was also above economists’ forecast of 51.6.

The score exceeded the neutral 50.0 mark for the first time since August, suggesting an upturn in business activity.

Underpinned by higher customer numbers, there was a moderate increase in overall business. Orders also rose for the first time in five months. At the same time, the increase in new export business was the joint-fastest since April 2021.

However, there was a reduction in workforce due to rising staff absences in January. Firms also lowered their recruitment to control costs. That said, employment dropped at the slowest pace in three months.

On the price front, the survey showed that input price inflation picked up in January as a result of higher raw material, staff and fuel expenses. By contrast, prices charged by service providers rose only slightly. Firms mentioned that pricing power was constrained by efforts to attract new business.

Buoyed by hopes that the reopening will boost demand and activity, business optimism strengthened sharply in January. Overall, the degree of positive sentiment rose to the highest for nearly 12 years.

The composite output index also increased in January, to 51.1 from 48.3 in December, to signal the first upturn in total Chinese business activity since August 2022. The expansion was mild as a strong rise in service sector activity was partly offset by a further decline in manufacturing output.

“There is still uncertainty in how the pandemic will develop, so full preparation should be made to deal with the next wave of the virus,” Wang Zhe, a senior economist at Caixin Insight Group said. “China will still need to effectively coordinate pandemic containment with economic and social development.”

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