China’s service sector stays a shiny spot as manufacturing unit knowledge disappoints

China’s services activity remained well within growth territory in April as a private survey showed a weaker reading from March.

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China’s services activity remained well within growth territory in April, although a private survey showed a weaker reading compared to March.

The Caixin/S&P Global Services Purchasing Managers’ Index fell to 56.4 in April from 57.8 the previous month. That’s still the second highest reading since November 2020.

It also marked the fourth straight month above the 50 mark, which separates growth and contraction.

According to Wang Zhe, senior economist at Caixin Insight Group, the latest Caixin data suggests services activity is still “recovering quickly.”

“In April, there was still a lot of optimism in the services sector, with readings for expectations for future activity remaining well above the neutral 50.0 level,” Wang wrote, adding that “companies remain confident in a better market environment than the impact of Covid subsided.”

The expansion in new orders for services also moderated slightly compared to the previous month, which was the highest in 28 months. New business from abroad also rose at a historically strong pace, although growth slowed from March, Caixin said.

The continued expansion of China’s services activity contrasted with disappointing factory activity reported earlier in the week.

Caixin China’s general manufacturing purchasing managers’ index fell to 49.5 in April, marking the first reading below 50 in three months.

New orders fell, providing further evidence of a short-lived improvement in factory production in February, when the reading hit an eight-month high.

“Higher activity levels were often associated with returns to more normal operating conditions as the impact of the pandemic continued to subside, leading to firmer demand and higher customer numbers,” said Chris Williamson, chief economist at S&P Global Market Intelligence, of Caixin’s factory activity data .

The National Bureau of Statistics manufacturing PMI also missed expectations, falling into contraction territory at 49.2 in April, compared to 51.9 in March.

Recovery has yet to find stability

A separate reading from Friday’s Caixin survey also showed weaker, albeit sustained, expansion in overall business activity.

The Caixin China General Composite Purchasing Managers Index fell to 53.6 in April from 54.5 in March, marking the slowest growth rate since January this year.

“While the rebound continued to be largely driven by the service sector, both manufacturers and service providers saw a weaker increase in output compared to March,” Caixin said in its Friday statement.

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Caixin’s Wang noticed the gap between factory and service data.

“It is worth noting that manufacturing and service activities diverged, with manufacturing employment and input costs falling significantly,” Wang wrote.

“It remains to be seen whether the economic recovery is sustainable after a short-term release of pent-up demand, with a number of indicators suggesting that the recovery is yet to find a firm footing,” he wrote.

Downside risk to growth

Earlier in the week, S&P noted that recent disappointments in China manufacturing activity data pointed to potential downside risks to the economy’s second-quarter growth.

“April’s services sector PMI data will be more relevant in determining the near-term GDP path given the sector’s larger share of the economy and the role of resurgent consumer spending on services in the recent recovery,” S&P wrote.

“Encouragingly, the fall in prices recorded in the survey suggests mainland China does not appear to be exporting higher inflationary pressures to other economies,” he said.

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