China's services sector takes major hit amid coronavirus epidemic

China’s services sector had its worst month on record in February, hit by the COVID-19 epidemic, a business survey showed on Wednesday.

The Caixin/Markit services purchasing managers’ index almost halved last month to just 26.5 from 51.8 in January. It dropped below the 50-point margin that separates growth from contraction on a monthly basis for the first time since the survey began in late 2005.

Business activity almost ground to a halt as tens of millions were forced to stay at home amid strict travel restrictions while many restaurants, malls, and movie theaters remained closed.

“Stagnating consumption amid the coronavirus epidemic has had a great impact on the service sector,” Zhong Zhengsheng, director of macro-economic analysis at CEBM Group, wrote in a note accompanying the Caixin PMI release.

The slump in the private sector survey, which focuses more on small, export-oriented companies, echoed an official survey last week, which also showed the activity falling at a record pace.

China’s February services PMI showed the steepest decline in new work since November 2008 while outstanding orders surged to a record high as many were unable to deliver services and temporarily closed shop due to the outbreak.

Demand shrank the most at home, but new orders from overseas also fell sharply from January. Export demand fell the most since the sub-index started in September 2014.

Services companies shed jobs for the first time in nearly a year and a half with the employment sub-index hitting its lowest ever. At the same time, firms are struggling to recruit staff due to travel curbs.

To increase sales, firms have lowered prices for the third time with discounting at its most aggressive in almost eight years.

A China Merchants Bank survey of over 20,000 companies mostly in the services sector conducted in February showed nearly 20 percent of the companies face “severe difficulties” due to the coronavirus.

Caixin’s composite manufacturing and services PMI, also released on Wednesday, slowed to a record low of 27.5 in February from 51.9 in January.