Growth in services moderates; export rise slower

China's services sector activity expanded at a slower pace in December as export growth contracted due to the resurgence of the novel coronavirus in several countries, a private sector survey said on Wednesday.

The Caixin China General Services Business Activity Index came in at 56.3 in December, slightly down from 57.8 a month earlier. But the rate of expansion still stood above the benchmark of 50, indicating brisk expansion. The expansion rate was also the best in a decade and marked a further recovery from the COVID-19 outbreak at the start of the year, according to the survey.

After expanding at the quickest rate for over a year-and-a-half in November, exports saw modest growth in December. The recent resurgence of the virus in key export markets continued to restrain overseas demand and limit growth of overseas business, according to the survey.

But business activity and total new businesses in the service industry expanded for the eighth month in a row, said Wang Zhe, a senior economist at Caixin Insight Group. Service companies indicated that there was little pressure on their operational capacities, as they had reduced their work backlogs by the end of the fourth quarter, he said.

Meanwhile, December data pointed to a second consecutive monthly growth in workforce numbers at Chinese service providers, according to the Caixin survey. According to Erin Xin, an economist for HSBC, the positive employment reading will support a recovery in incomes, particularly for migrant workers, most of whom are employed in the services sector. As migrant workers contribute roughly 15 percent to all retail sales in China, a more sustained employment recovery in services can further help the consumption recovery, she said.

The Caixin survey mirrors data released by the National Bureau of Statistics on Dec 31, which saw the subindex of the service business activities at 54.8, down form 55.7 in November. Despite the moderate contraction, the December figure still remained at a relatively elevated level, said Zhao Qinghe, a senior statistician with the NBS.

To be more specific, the business activity indexes for air transport, telecommunications, radio and television satellite transmission services, currency financial services and capital market services all remained above 60, which indicated high business prosperity and rapid increase of overall businesses. However, restaurants, real estate, environmental protection and ecological conservation saw moderate slowdowns in December, according to the NBS.

Analysts from Nomura Securities wrote in a report released on Wednesday that the tightening of social distancing rules adopted by some local governments prior to the Lunar New Year holiday will hamper the pace of recovery in certain services sectors, such as catering, hotel and passenger transport. While the Nomura analysts expect the services PMI to drop further this month and in February, the reading will still stay above the 50 mark.

According to the Caixin survey, Chinese entrepreneurs still remained confident about the overall economic outlook. The gauge measuring business expectations reached the highest since April 2011. A majority of interviewed service providers expressed confidence that the epidemic was under better control and the economy was recovering.