China'S Service Industry PMI Recorded 52.9 In January, Expanding For The First Time In Five Months

With the optimization of epidemic prevention and control measures and the decline of the number of COVID-19 infections after reaching the peak, the service industry's landscape will be significantly improved in January 2023, and it will expand for the first time since September 2022, with a stronger rebound than that of the manufacturing industry.

The Caixin China's general service industry business activity index (service industry PMI) in January 2023 released on February 3 recorded 52.9, 4.9 percentage points higher than that in December 2022. The previously announced manufacturing PMI of Caixin in January 2023 rose 0.2 percentage points to 49.2, the sixth consecutive month of contraction. The rising prosperity of the two industries drove Caixin China's comprehensive PMI to rise 2.8 percentage points to 51.1 that month, which was also the first time since September 2022 that it was higher than the boom and bust line.

This trend is consistent with the National Bureau of Statistics. Previously, the PMI of manufacturing and service industries in January 2023 announced by the National Bureau of Statistics rose 3.1 and 14.6 percentage points respectively to 50.1 and 54.0, driving the comprehensive PMI up 10.3 percentage points to 52.9, both returning to the expansion range.

From the sub data, after the optimization of epidemic prevention measures, the supply and demand of the service industry resumed expansion. The production and operation index and the new order index were both higher than the critical point for the first time in the past five months, but the rebound was less than that after the release of the epidemic in Shanghai in the second quarter of 2022. After a slight contraction at the end of 2022, the index of new export orders rose again above the boom and bust line, the highest since April 2021. According to the enterprises interviewed, the relaxation of travel restrictions and other epidemic prevention measures has boosted the recovery and growth of new export business.

Although the supply and demand of the service industry have recovered, the employment market is still shrinking. In January, the service industry employment index was below the boom and bust line for three consecutive months, but the decline has narrowed. Some enterprises have reduced employment in order to control costs, while some employees are unable to work due to the epidemic. Due to the combination of sales growth and the inability of some personnel to be on duty, the backlog volume index of the month hit a new high since June 2022.

The cost of raw materials, labor, fuel, etc. continued to rise, driving the purchase price index of raw materials in the service industry to rise slightly in the expansion range; Factory price index also rose slightly in the expansion range. The interviewed enterprises said that the price increase is to transfer the pressure of rising costs, but in order to maintain competitiveness, the overall pricing ability of service enterprises is limited.

After the optimization of epidemic prevention policies, the market confidence of the service industry continued to rise, and the expected index of business activities in January hit a new high since March 2011. Enterprises generally believe that market conditions and customer demand will rebound strongly as the economy gradually returns to normal.

Wang Zhe, senior economist of Caixin Think Tank, said that since the optimization of epidemic prevention measures at the end of 2022, the number of infected people has peaked rapidly and then fell back. The service industry has rebounded before the manufacturing industry, but it still takes time for employment to recover. After the impact of this round of epidemic, accelerating the recovery of the economy and promoting the normalization of social production and living order will be the focus of economic work, while improving expectations, restoring confidence, increasing income, expanding consumption and stimulating domestic demand will be the key points. Looking forward to the future, there is still a strong uncertainty in the development of the epidemic. We should make full preparations to deal with the possible impact of the next wave of the epidemic. The epidemic prevention and control and economic and social development still need to be effectively coordinated.