China services hit 10-year high as economy shakes off pandemic 

Key purchasing managers' index shows solid expansion in Mainland despite sporadic outbreaks of coronavirus, while Hong Kong and Japan struggle to reboot 

China services hit 10-year high as economy shakes off pandemic
While robot hotel concierges such as this one in Guangzhou could help mitigate the spread of Covid-19, Nomura analyst Ting Lu said the recovery of China's catering, hotel and passenger transport sectors would be delayed. File photo: Reuters.

(ATF) Services in China continued its expansion in November as a key purchasing managers index (PMI) hit a 10-year high, according to data released on Thursday.

The Caixin China General Services Business Activity Index, a snapshot, rose to 57.8 in November from 56.8 the previous month, hitting the second-highest level since April 2010.

A number above 50 indicates an expansion in activity, while a figure below that points to a contraction. The index has been in expansionary territory for seven consecutive months.

China's economy shows clear signs of growing domestic and international demand, said Shane Oliver, head of investment research at AMP Capital in Sydney. "The PMI is indicating continuing solid expansion in China."

Total new business in November hit the highest level since April 2010, with new export business expanding for the first time in five months, the survey showed in a clear sign that China is shaking off the after-effects of the coronavirus pandemic.

“Uncertainties caused by the pandemic did not slow growth in demand for services exports,” said Wang Zhe, senior economist at Caixin Insight Group.

However, sporadic local outbreaks of coronavirus are likely to hamper a full return of services by keeping some social distancing requirements in place for a longer time. That, said Nomura analyst Ting Lu, would "constrain the pace of recovery in the services sector, especially the catering, hotel and passenger transport industries". 

China on Thursday reported 16 new Covid-19 cases in the previous 24 hours but all were imported from overseas, the National Health Commission said.

Meanwhile in Hong Kong, the semiautonomous Chinese city that has been the focus of failed pro-democracy protests over the past two years, business activity grew for the first time since March 2018.

The IHS Markit Hong Kong PMI rose to 50.1 in November from 49.8 in October, the first expansionary reading since March 2018, and despite a surge in Covid-19 cases recorded in recent weeks.

"The new rounds of coronavirus outbreak and retightening of control measures towards the end of November will be a renewed drag on activity over the next few months," said Maggie Wei, a Goldman Sachs analyst.

Hiring spree

Services companies responded to the Caixin survey by saying they were hiring more workers for the fourth straight month in November and at a faster pace, while business confidence improved to the highest in nearly a decade.

"We expect the services sector to improve further and play an increasingly important role in driving the domestic growth recovery in coming months," said Lu.

Lu said Nomura would maintain its gross domestic product growth forecast of 5.7% year-on-year for the fourth quarter, up from 4.9% in the third quarter. Lu said she expected real GDP growth to surge to 19.1% year-on-year in the first quarter of 2021 "due to both decent sequential momentum and an extremely low base".

The Caixin China General Composite PMI, which covers both manufacturing and service companies, came in at 57.5 in November, up from 55.7 the previous month. The Caixin manufacturing PMI rose to 54.9 in November, also the highest in a decade. 

The National Bureau of Statistics released China’s official services PMI on Monday, showing a reading of 55.7 in November, up from 55.5 the previous month.

Japan still hobbled

Separately, Japan’s service sector was hit by a surge in coronavirus infections in November, with a renewed decline in employment.

The au Jibun Bank Japan Services PMI edged higher to 47.8 in November from 47.7 a month early. New business contracted at the fastest pace since August, dropping for the 10th consecutive month.

Companies surveyed said a third wave of coronavirus cases in the country had hit demand, while employers scaled back staffing amid ongoing weakness in activity. “Japanese private sector firms remain confident of a wider recovery over the next year amid hopes that the pandemic will recede," Usamah Bhatti, economist at IHS Markit said.

PMI China Hong Kong japan