China'S Service Sector PMI Fell To A Five Month Low Of 51.4 In January

In January 2022, affected by the spread of the epidemic situation and the corresponding increase in prevention and control measures, China's service industry maintained its expansion, but the expansion momentum was significantly weakened.

The Caixin China general service industry operating activity index (PMI) in January, released on February 7, recorded 51.4, down 1.7 percentage points from the previous month, indicating a slight expansion of service industry activities, but the growth rate slowed to the lowest in recent five months. Enterprises generally reflect that the expansion of business activities is due to the increase of new business volume, but the epidemic situation and corresponding epidemic prevention measures restrict the overall growth rate.

Previously announced, Caixin's China manufacturing PMI fell 1.8 percentage points to 49.1 in January 2022, the lowest since March 2020. The business prosperity of the two major industries fell at the same time, dragging down the comprehensive PMI of Caixin China by 2.9 percentage points to 50.1 in January, slightly higher than the boom and bust line.

This trend is consistent with the National Bureau of statistics. In January 2022, the PMI of manufacturing industry recorded 50.1, a decrease of 0.2 percentage points, and the service industry business activity index decreased by 1.7 percentage points to 50.3, driving the comprehensive PMI down by 1.2 percentage points to 51.0.

From the perspective of itemized data, the negative impact of the epidemic is increasing, which restricts the expansion speed of supply and demand of service industry. In January, the service business activity index and new order index were in the expansion range for the fifth consecutive month, but both decreased by more than 1 percentage point compared with the previous value. On the other hand, foreign demand ended its expansion trend in the past three months under the influence of the surge in overseas epidemic situation, and the index of new export orders fell to the contraction range, the lowest since November 2020.

The slowdown of market supply and demand expansion caused employment contraction. In January, the employment index of the service industry fell into the contraction range for the first time in nearly five months, but the contraction rate was still slight. The interviewed enterprises reflected that the market demand was relatively weak and the post replacement was insufficient, which led to the labor market downturn. The backlog increased slightly in January, but growth slowed to a slight level from a 22 month high last month. Enterprises generally reflected that the epidemic prevention and control measures had a certain impact on production.

The cost pressure of service enterprises is high. The input price index and ex factory price index of service industry in January were higher than those of last month, and the input price index was still significantly higher than the ex factory price index. The enterprises interviewed said that the increase in the cost of labor and raw materials is the main reason for the high cost, and some enterprises have increased the cost of epidemic prevention. At the same time, due to the increase of input cost, enterprises have raised the charging price.

Market optimism weakened. Although the business expectation index of service enterprises in January was still significantly higher than the boom and bust line, it was the lowest in 16 months. Enterprises generally said that once the epidemic subsided, the market conditions would improve. In addition, new product development and new market expansion would support the industry's expectation of output growth. However, the uncertainties associated with the outbreak remain major concerns for businesses.

Wang Zhe, a senior economist at Caixin think tank, said that in January 2022, the business climate of manufacturing and service industries both declined, especially the manufacturing industry. Domestic market demand is sluggish, overseas demand is falling sharply, employment continues to be under pressure, price index is stable, high prices of some raw materials are still a worry, and optimism in the service industry market is declining. During the period from December 2021 to January 2022, local epidemics occurred in Xi'an, Beijing and other places. The strengthening of relevant epidemic prevention measures restricted the production, transportation and sales links, and the downward economic pressure under "demand contraction, supply shock and weakening expectations" is further highlighted. In 2022, the policy orientation still needs to focus on stability, optimize the structure, strengthen the employment priority orientation, strengthen the support for small and micro enterprises, reduce the financing cost of enterprises, timely respond to market concerns and enhance the predictability of policies.