China's services activity contracts, holiday spending slumps

CHINA'S services activity contracted more than expected in May, with spending figures over the long weekend showing the hit to consumer spending from Covid curbs will linger into this month.

The Caixin China Services purchasing managers' index (PMI) rose to 41.4 in May from 36.2 in the previous month, Caixin and S&P Global said in a statement Monday (Jun 6), missing the median estimate of 46 in a Bloomberg survey of economists. A reading below 50 signals a contraction.

Covid restrictions in major Chinese cities began easing in May as case numbers dropped, igniting hopes of a gradual pickup from the worst activity levels since early 2020. Shanghai began lifting its 2-month long lockdown last week and Beijing has rolled back restrictions as well.

However, the road to recovery may be a long and bumpy one, with regular Covid testing becoming the norm and some controls remaining in place. Travel and spending over the 3-day Dragon Boat Festival from Jun 3 showed spending remain depressed: domestic tourism revenue dropped 12.2 per cent from a year ago, while the number of trips made was down 10.7 per cent on year, data from the ministry of culture and tourism showed.

China's service industries posted further marked declines in business activity and new orders in May due to measures to contain the recent Covid outbreaks, according to the PMI statement. Both supply and demand in the services sector shrank further, it said.

"May's reading was the second lowest since February 2020 as China's Covid-19 epidemic still weighed heavily on services activities," Wang Zhe, a senior economist at Caixin Insight Group, said in a statement. "Entrepreneurs overall were still confident that the Covid-19 epidemic will be brought under control, though some remained concerned about a resurgence of Covid-19 in the future."

SEE ALSO

Beijing opens up restaurants, cinemas as China eases curb

China's services sector activity contracts less sharply in May: official PMI

DECODING ASIA

Navigate Asia in
a new global order

Get the insights delivered to your inbox.

Citigroup economists said the drop in travel and spending over the just-ended long weekend was smaller compared with those seen during the Labor Day holiday in May, which suggest a recovery is underway. The improvement will likely accelerate from June onwards, they said.

The Caixin survey findings are largely in line with those in the official non-manufacturing purchasing managers' index, which increased to 47.8 from April's 41.9 but stayed below the 50-mark. The official survey tracks larger companies and includes the construction sector, while the Caixin survey focuses more on smaller ones. BLOOMBERG