China’s Service Sector Falls More Than Expected in Oct - Caixin PMI

By Ambar Warrick 

Investing.com-- China’s massive services sector shrank far more than expected in October, a private survey showed on Thursday, as disruptions from COVID-related lockdowns continued to chip away at business activity and sentiment.

The Caixin Services Purchasing Managers Index (PMI) read 48.4 in October, lower than expectations for a reading of 49.2, and weaker than September’s 49.3.

A reading below 50 indicates contraction, with the services sector now spending a second consecutive month in red. Thursday's data also follows official readings earlier this week that showed a continued decline in Chinese business activity. 

Containment measures to curb a new COVID outbreak in the country were the biggest weights on business activity during the month, Caixin said in a press release. But the decline in activity was still slower than a drastic drop seen earlier this year, when China locked down several cities due to elevated infection levels.

Still, the country introduced curbs in several cities in October, including financial capital Shanghai, to combat a new outbreak of the virus.

“With Covid prevention and containment measures tightened in the face of sporadic outbreaks in many areas, services activity remained in contractionary territory for the second consecutive month,” Wang Zhe, Senior Economist at Caixin Insight Group said. 

China’s zero-COVID policy is at the heart of its economic woes this year as a series of lockdowns ground economic activity to a halt. While the country has rolled out a series of stimulus measures to shore up growth, economic activity has shown little signs of recovery in recent months.

Amid widespread public opposition to the policy, rumors began circulating in social media this week that China plans to withdraw the zero-COVID policy by March 2023. This spurred a two-day rally in Chinese markets, even though government officials issued no official comment on the matter.

President Xi Jinping, who recently gained approval for a third consecutive term in office, also reiterated Beijing’s commitment to maintaining its strict anti-COVID stance. 

Investors are now uncertain over how the country plans to proceed with the zero-COVID policy, given the increasing public backlash and slowing economic growth. 

The yuan sank after Thursday’s data, trading down 0.2% and close to its weakest level since the 2008 financial crisis.