April sees continued shrinking of service sector

China’s service sector remained in contraction territory as job losses expanded and exports declined in April after March’s improvement, a private survey showed on Thursday.

The Caixin/Markit services Purchasing Managers’ Index (PMI) firmed up to 44.4 in April from 43.0 in March, but remained far below historic levels, signaling continued downward pressure on the sector.

A reading above 50 indicates expansion while a reading below 50 means contraction on a monthly basis.

The private survey focuses more on small and export-oriented companies in China. 

“The service sector was burdened by further shrinking overseas demands with the global spread of the pandemic,” said Zhong Zhengsheng, director of macroeconomic analysis at CEBM Group.

New export orders plunged in April after improvement in March, only marginally better than February’s collapse. 

Zhong said: “March’s rebound in exports was mainly due to delayed deliveries of overseas orders before the Lunar New Year Holiday, which was unsustainable.”

“More tax and fee cuts are needed to support the service sector,” Zhong said. “The chain effect of external demand on incomes, consumption and investment was set into motion, which calls for urgent and more comprehensive stimulus measures to offset it, including relief for enterprises, accelerating investment, promoting consumption and ensuring employment.”

Despite the recent gloom, service companies’ confidence ran high with costs eased by reduced payrolls and slumping oil prices. It was also boosted by expectations about future domestic consumption.