China’s Services Sector Contracts for 3rd Month as Job Losses Hit Record: Caixin PMI

May 7, 2020 Updated: May 7, 2020

BEIJING—China’s services firms wallowed in contraction in April as layoffs hit a record and export orders plunged, a private survey showed.

The Caixin/Markit services Purchasing Managers’ Index (PMI) increased to 44.4 in April from 43 in March, but remained in a deep slump and far below historic averages. The 50-mark separates growth from contraction on a monthly basis.

The third straight month of contraction for China’s services sector, an important generator of jobs and which accounts for about 60 percent of the economy, suggests a still turbulent period ahead after the collapse in economic activity in the first quarter, when gross domestic product shrank 6.8 percent.

It also raised worries about the outlook as a sharp global downturn dampens demand for Chinese goods and services.

“The second shockwave for China’s economy brought about by shrinking overseas demand should not be underestimated in the second quarter,” said Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group.

Major economies, including the United States and Europe, remain in the grip of the pandemic amid rising infections and deaths. The sweeping impact of the CCP (Chinese Communist Party) virus, commonly known as the novel coronavirus, has many worried that a worldwide recession could be far more damaging than first thought.

In April, new export orders shrank further after their pace of contraction slowed in March, declining at the second-fastest rate on record, just marginally better than February’s collapse.

That underscored the brief nature of March’s rebound as it was mainly due to delayed deliveries of orders received before the Lunar New Year holiday, Zhong said.

Dwindling exports pushed overall new business lower, and backlogs of work declined again as orders dried up, suggesting the recovery in domestic consumption has been insufficient to offset the significant downdraft in external demand.

Sluggish demand also prompted services companies to reduce their payrolls for the third month at the fastest pace on record in April. They also slashed their selling prices for the fifth straight month amid fierce competition for sales.

The findings from the private sector survey, which focuses more on small, export-oriented companies, also contrasted with an official survey last week pointing to an expansion in activity.

Beijing is due to hold its annual parliament meeting later this month, where the government will unveil key economic targets for the year. The much-anticipated meeting has been delayed for over two months due to the fallout from the CCP virus outbreak.

Caixin’s composite manufacturing and services PMI, also released on May 7, picked up to 47.6 from 46.7 in March. Though the rise suggests that the initial shock from the virus outbreak is easing, the reading remained below historical averages.

Epoch Times staff contributed to this report