China’s Service Sector Bounces Back into Growth as COVID-19 Fades Out

In May, the Chinese service sector saw its first growth since the virus outbreak started this year. The economy has started to bounce back and recover from strict coronavirus-induced containment measures, although employment and overseas demand is still at a low level, the Caixin-survey showed.

The Caixin China General Services Business Activity Index, based on monthly data compiled from executives in over 400 companies, shows snapshot of operating conditions in the country’s services sector. In May, the index rose to 55.0 compared to April’s figure of 44.4. The increase means that the index surpasses the 50-mark, which separates growth from contraction. In February this year, when the spread of the new coronavirus was at its highest level in China, the index fell to an all-time record low of 26.5. However, the rise to 55.0 in May is the fastest month-on-month growth since October 2010.

The growth in May was mainly driven by more businesses in the service sector, such as restaurants, hotels and tourist agencies, getting back to work as travel restrictions was lifted just before the May-holiday. The overall consumer spending also got a well-needed lift from spending vouchers issued by some local governments, as well as discounts offered by businesses.

However, even though there are signs of recovery, the employment level in the services sector continued to contract, although at a slower pace. Stabilizing this rate is a top government priority this year, as the annual target is to create over 9 million urban jobs during 2020. Therefore, the Government just announced, at the annual session of the National People’s Congress (NPC), a stimulus and relief package worth several trillion yuan, with a focus on helping businesses and people in need.

As the service sector is one of the most important sectors in generating jobs, accounting for almost 60 per cent of the Chinese economy, the May growth is still a great indicator that China is on the right track to full recovery.

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