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China services sector growth slows to 10-month low

By Michele Maatouk

Date: Wednesday 03 Mar 2021

LONDON (ShareCast) - (Sharecast News) - Growth in China's services sector eased to a 10-month low in February, according to figures released on Wednesday.
The Caixin services purchasing managers' index fell to 51.5 from 52 in January. This marked the lowest reading since April 2020.

Wan Zhe, senior economist at Caixin Insight Group, said: "Service providers were generally optimistic about the economic recovery, and were especially confident that both the domestic and overseas epidemics would fade."

Freya Beamish, chief Asia economist at Pantheon Macroeconomics, said the decline was to be expected, with the index sensitive to the travel industry, which buckled in February, under fresh Covid curbs.

"The performance elsewhere in the sector, however, was more positive, according to high frequency data, with logistics booming, real estate doing pretty well - adjusting for Lunar New Year- and online sales of durable goods denoting reasonable consumer sentiment.

"At the same time, we think the seasonal adjustment is slightly over-egged; it seems as though the adjustment model attributes too much activity to Lunar New Year. On our re-adjustment, the performance is better.

"The report points to service providers shedding headcount for the first time since last July. Again, the situation on the ground probably was very divergent across subsectors. The economy has been going through a rough patch since Q4, and the new restrictions at home and abroad have exacerbated that, feeding through to the labour force, but we reckon this should soon turn around.

"The services sector is under intense margin pressure as things stand- the report highlights another steep increase in operating costs, though weaker than at the start of the year - hence the cost cutting, while demand is limited by Covid restrictions, preventing those pressures from being passed on."