China service sector activity shrinks for 4th straight month in Dec – Caixin PMI

China service sector activity shrinks for 4th straight month in Dec - Caixin PMI
© Reuters.

By Ambar Warrick– China’s service sector shrank for a fourth straight month in December, a private survey showed on Tuesday, as an unprecedented spike in COVID-19 cases disrupted activity after the government eased several lockdown measures.

The Caixin China General Services Business Activity Index read 48.0 in December, higher than last month’s reading of 46.7. A reading below 50 indicates contraction.

The data, coupled with a reading on manufacturing activity earlier this week, and government data released last week, shows that overall Chinese business activity remained under pressure in December amid continued headwinds from the COVID-19 pandemic.

China is now facing its worst yet COVID-19 outbreak, which threatens to overwhelm the country’s healthcare infrastructure. Analysts expect this outbreak to potentially delay a broader economic reopening in the country, which could keep business activity constrained in the coming months.

Still, the rate of contraction in services activity softened from the prior month, indicating that the relaxing of anti-COVID measures was allowing for some improvement in operations.

Markets are holding out for an eventual economic reopening in the country this year. Traders piled heavily into Chinese stocks and debt towards the end of 2022, seeing the space as a bargain buy after a heavy selldown earlier in the year.

This was also reflected in increased business optimism among Chinese service providers, according to the Caixin data. Firms are positioning for an eventual economic recovery after the country began easing COVID-19 restrictions in December.

“Optimism improved significantly. Service providers expressed strong confidence in an economic recovery following the easing of COVID containment measures,” Wang Zhe, Senior Economist at Caixin Insight Group wrote in a note.

President Xi Jinping estimated in his new year’s address that China’s economy grew 4.4% in 2022 – a figure that is much higher than markets were anticipating. But he also noted that the country faces increased headwinds from the COVID-19 pandemic in the coming months.