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China’s Services Sector Contracts as Recent COVID-19 Restrictions Take a Toll

Economic IndicatorsSep 03, 2021 06:00
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© Reuters.

By Gina Lee

Investing.com – China’s services sector entered contraction territory in August, with recent COVID-19 restrictions continuing to thwart the country’s economic recovery.

The Caixin services purchasing managers’ index (PMI) was 46.7, the lowest level since April 2020. It was also below the 50-mark indicating growth and down from the previous month’s 54.9 figure.

Data released earlier in the week showed that the Caixin manufacturing PMI was at 49.2, while the manufacturing PMI and the non-manufacturing PMI were at 50.1 and 47.5 respectively.

The services sector recovered at a slower pace than its manufacturing counterpart but had been boosted by increasing consumption in recent months.

The strict restrictions, including those on travel, put into place to curb China’s latest COVID-19 outbreak hit the transportation, catering, accommodation and entertainment sectors particularly hard.

Although it seems the outbreak has since been largely contained, the damage has already been done.

"Service costs were still under great pressure amid elevated labor and transportation costs amid the COVID-19 resurgence. Sluggish market demand limited businesses' bargaining power, causing prices charged by service providers to slip after a month of growth," Caixin Insight Group senior economist Wang Zhe told Reuters.

Rooms that were originally CNY300-400 ($46.44-$61.92) are now discounted to around CNY200 and "still no one is coming," the manager of a hotel in Zhangjiajie, Hunan province, told Reuters. The province was a hotspot of the latest COVID-19 outbreak.

"COVID-19's Delta variant is so terrible, people don't want to go out,” said the manager, adding that extra business over national holidays for the remainder of 2021 still will not make up for losses incurred during the summer vacation period.

Even businesses that were less impacted by COVID-19 took a hit.

"Inter-provincial flight-plus-hotel travel packages didn't resume until mid-August, which had a pretty big impact on business. Now the peak season has already passed," a bed and breakfast owner in Sanya, Hainan province, told Reuters.

China’s Services Sector Contracts as Recent COVID-19 Restrictions Take a Toll
 

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