China'S Service Industry PMI Rose To 48.0, And Market Confidence Rose To The Highest Level Since August 2021

In December 2022, epidemic prevention measures will be further optimized to drive the marginal improvement of the landscape of China's service industry in the shrinking range.

The Caixin China's general service industry business activity index (service industry PMI) in December 2022 released on January 5 recorded 48.0, 1.3 percentage points higher than that in November, but still below the critical point.

The previously announced manufacturing PMI of Caixin in December 2022 fell 0.4 percentage points to 49.0, the lowest in nearly three months. The marginal improvement of the service industry was greater than the decline of the manufacturing industry, driving Caixin China's comprehensive PMI up 1.3 percentage points to 48.3 in the same month.

Caixin China's manufacturing PMI trend is consistent with the National Bureau of Statistics, while the service PMI and comprehensive PMI are different from the Bureau of Statistics. Previously, the PMI of manufacturing and service industries in December 2022 announced by the National Bureau of Statistics dropped by 1.0 and 5.7 percentage points respectively to 47.0 and 39.4, both of which were the lowest since March 2020. The decline of PMI in the two major industries reduced the comprehensive PMI to 42.6, 4.5 percentage points lower than the previous value.

From the sub item data, affected by the epidemic, the production and demand of the service industry continued to shrink in December, but factors such as the optimization of epidemic prevention policies led to marginal improvement in the production and operation index and new order index; Exports failed to continue the expansion trend of the previous month, and the index of new export orders fell again to the contraction range.

The poor market conditions have dragged down the employment of the service industry, which is still shrinking, but the employment index rose slightly in December. Some enterprises reported that employees left their jobs due to the epidemic, and some enterprises reduced their employment due to poor efficiency. At the same time, the backlog index of the month rose to a new high since June 2022, and was above the critical point for the fifth consecutive month.

In December 2022, the cost of the service industry is still rising, driven by the increase in the cost of raw materials, labor, and energy. Under cost pressure, enterprises continue to raise sales prices. However, constrained by weak demand, the increase in sales is limited. The ex factory price index of that month fell to the lowest level in nearly four months, but it is still in the expansion range.

The optimization of epidemic prevention policy made the market confidence of the service industry recover, and the service industry business expectation index rebounded to the highest level since August 2021 in December 2022. Enterprises generally expect that the improvement of the epidemic situation and the relaxation of prevention and control measures will support the recovery of sales and business activities. Increased investment and policy support are also considered as possible drivers of growth.

Wang Zhe, senior economist of Caixin, said that in December 2022, the "new ten rules" for epidemic prevention and control were released to further optimize the implementation of epidemic prevention and control measures. In the short term, the number of infected people has soared, which has a strong impact on the social production and life order. How to effectively coordinate the epidemic prevention and control and economic and social development again becomes the top priority. The Central Economic Work Conference has set the tone that the foundation for the current economic recovery is not yet solid, and the triple pressures of demand contraction, supply shock, and expected weakening are still large. The central government has made it clear that the recovery and expansion of consumption should be given priority in the future. This requires not only improving social psychological expectations and boosting development confidence, but also the coordination and cooperation of various policies to stabilize the employment base and effectively increase the disposable income of residents.