China's service sector expands, still room for stability

China's services sector activity expanded for a third straight month in March amid further recovery in business activity with the optimized COVID-19 containment measures, a private survey showed on Thursday.

The Caixin China General Services Purchasing Managers' Index, which focuses more on small and medium-sized enterprises and exporters, rose to 57.8 in March from 55 in February, media group Caixin said in a report. The reading was well above the 50-point mark that separates growth from contraction, marking a new high not seen since November 2020.

"Services supply and demand expanded rapidly last month. The market returned to normal quickly after the most recent wave of COVID-19 infections subsided, fueling both supply and demand," said Wang Zhe, senior economist at Caixin Insight Group.

The gauges for business activity and total new business both continued to pick up in March, staying within the expansionary territory and reaching their highest level since November 2020.

Meanwhile, the easing of international travel restrictions boosted service exports in March, as the sub-index for new export orders logged the highest reading since records began in September 2014.

Employment in the services sector continued to improve in March, with the corresponding reading hitting its highest since November 2020, as businesses hired more workers in response to the fast recovery in market demand. However, the influx of workers was not able to fulfill all new orders and backlogs of work rose again in March.

According to the report, business confidence across China's services sector remained strong in March, despite the degree of optimism slipping to a three-month low.

Service firms expect that the market conditions and customer demand will revive further in the coming months against the backdrop of the optimization of COVID-19 control measures. They were generally optimistic that business activity will continue to rise over the coming year.

Owing to the improvement in the services sector, Caixin's composite PMI - which includes activity in both sectors - rose to 54.5 from 54.2 in February, the report said.

Wang noted the manufacturing and service sectors diverged in March, with an accelerated rise in service activity and a softer upturn in manufacturing output, reflecting that the foundation for economic recovery is not yet solid.

"Looking forward, economic growth will still rely on a boost in domestic demand, especially an improvement in household consumption. Only by working hard to stabilize employment, increase household income and improve market expectations, can the government reach its goal of restoring and expanding consumption," Wang added.