China'S Service Industry PMI Fell To 36.2 In April, A New Low Since March 2020

In April, business activities in the industry were further reduced by tightening the business scope.

The Caixin China general service industry operating activity index (PMI) of China's general service industry published on May 5 recorded 36.2, down 5.8 percentage points from March, and for the second consecutive month, it reached a new low since March 2020.

Previously, Caixin's China manufacturing PMI fell to 46.0 in April. The business climate of the two major industries continued to decline in the contraction range, dragging down the financial and new China's comprehensive PMI by 6.7 percentage points to 37.2 in April, the lowest since March 2020.

Caixin China PMI trend is consistent with the National Bureau of statistics. In April, the PMI of manufacturing industry decreased by 2.1 percentage points to 47.4, the business index of service industry decreased by 6.7 percentage points to 40.0, and the comprehensive PMI recorded 42.7 points, lower than 6.1 percentage points in March.

From the sub data point of view, the contraction of supply and demand in the service industry has expanded. Since April 2020, new service activity index continued to fall below the critical point in April. According to the respondents, the tightening of epidemic prevention measures has restricted business activities, while containment management and travel restrictions have seriously affected customer demand in the service industry. At the same time, external demand continued to shrink, with the index of new export orders in the service sector falling to the lowest level since May 2020 in April.

The supply and demand of service industry further weakened, resulting in continuous contraction of employment. The employment index of service industry in April decreased slightly compared with that in March, and was in the contraction range for the fourth consecutive month. Companies said the reduction was due to a reduction in new business volume due to public health events and measures to cut costs. The business operation was hindered by public health events, and the service industry's backlog remained expanding for the sixth consecutive month, but the backlog rate was slightly slower than that in March.

The input price of service industry keeps rising, and the ex factory price changes from up to down, which leads to the further increase of enterprise cost pressure. As the prices of energy and raw materials are still high, and the prevention and control measures of public health events increase the operating costs of enterprises, the input price index of service industry in April continues to be higher than the boom and bust line. Under the influence of public health events, market demand is weak, forcing enterprises to reduce sales prices, resulting in the service industry sales price index shrank for the first time in nearly eight months, the lowest since May 2020. Enterprises generally said that affected by public health events, the number of customers in catering and accommodation industry decreased significantly.

Although the public health events are still continuing, the service industry business expectation index slightly improved in April, but it is still lower than the long-term average. Some respondents believe that output will rise once public health events subside, but some less optimistic enterprises worry that the duration of public health event control is too long.

Wang Zhe, a senior economist at Caixin think tank, said that local public health events continued in April, the manufacturing and service industries continued to weaken, and the service industry contracted even more. Market demand is under pressure, external demand is deteriorating, supply is shrinking, supply chain is blocked, logistics time is prolonged, backlog is increasing, it is difficult for workers to return to work, inflation pressure is sustained, and market optimism is lower than the long-term average. Since April, the public health situation in Shanghai is still severe, especially for the public health.

He believes that the most urgent work at the current policy level is to optimize the flow of personnel and materials, and strive to stabilize the supply chain of the industrial chain, while adhering to the established policy of "dynamic clearing". In addition, we should strengthen the support to the industry enterprises which are greatly affected by public health events to stabilize the market expectation. Under the public health events, many enterprise employees, flexible employees, low-income groups' income decline, living difficulties, policy level should be subsidized.