China’s Services Sector Grows at Slowest Rate in 5 Months, Another Sign of a Weakening Economy

China’s Services Sector Grows at Slowest Rate in 5 Months, Another Sign of a Weakening Economy
People wear protective masks as they walk by an ad for French luxury fashion brand DIOR outside a new location set to open at a shopping area in Beijing, China, on Nov. 24, 2021. (Kevin Frayer/Getty Images)
2/9/2022
Updated:
2/9/2022
0:00
The expansion of China’s services sector fell to a five-month low in January, and sentiment toward the year ahead sank to the lowest level in 16 months, a private survey stated on Feb. 7, as the pandemic and strict “zero-COVID” measures hit new business and employment.
The Caixin/Markit services Purchasing Managers’ Index (PMI) dropped to 51.4 in January from 53.1 in December, slightly above the 50-mark that separates expansion from contraction, with the lowest level since August last year.
As China’s economy continued to slow at the start in 2022, the survey result followed a decrease of its factory activity recorded in Caixin manufacturing PMI a week earlier, which fell to 49.1 in January from 50.9 in December.
“It has become more evident that China’s economy is straining under the triple pressures of contracting demand, supply shocks and weakening expectations,” said Wang Zhe, a senior economist at Caixin Insight Group.
He added, “In December and January, the resurgence of COVID-19 in several regions such as Xi'an and Beijing forced local governments to tighten epidemic control measures, which restricted production, transportation, and sales of goods.” 
China’s central bank has already started cutting interest rates, and pumping more cash into the financial system to bring borrowing costs down. On the contrary, the U.S. Federal Reserve is expected to raise rates to tamp down inflation.
A subindex for new business in the survey stood at 51.1 in January, slower than the long-run series average, and below 52.5 in the previous month.
 “The weak PMI indicates the policy easing measures from the government have not yet been passed to the real economy,” Zhiwei Zhang, chief economist at Pinpoint Asset Management Ltd., wrote in a note at the end of January. 
Some services providers attributed the slower growth to the COVID-19 outbreaks. In addition, rising cases abroad weighed on foreign demand, driving new export orders to shrink the most in 15 months.
The survey showed that these led to a further fall in employment, marking the first decline since August, amid a marginal rise in outstanding business.
While the official index reflects the business of larger, state-owned firms, the Caixin/Markit PMI focuses on smaller, private firms’ operation.
According to official data, China’s small- and medium-sized businesses contribute more than 60 percent of gross domestic product (GDP), and 80 percent of urban labor employment.
The Caixin China General Composite PMI, which includes manufacturing and services activities, stood just above the 50-mark threshold at 50.1 in January, and fell from 53 in December.
China’s GDP expanded 4.0 percent in the fourth quarter from a year earlier, the weakest growth in 18 months.
Reuters contributed to this report.