Economy Mar 04

Covid-19 hammers China, Hong Kong 

Service sector PMIs illustrate the depth of the crisis following disastrous factory activity numbers

by Contributor
Covid-19 hammers China and Hong Kong
Hong Kongers protest over the government’s response to the coronavirus outbreak.  

China’s business environment continues to deteriorate after being hit by the Covid-19 outbreak. 

On Wednesday, a survey showed how sales had plunged to their lowest level on record as the services sector was hammered in February.

Last month, the independent Caixin/Markit services purchasing managers’ index, or PMI, almost halved to just 26.5 from 51.8 in January. It was the first drop below the 50-point margin, which separates growth from contraction, since the study began in late 2005.

In short, the economy practically ground to a halt as tens of millions of people were forced into self-imposed quarantine as restaurants, malls and movie theaters were closed amid a nation-wide travel ban.

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

“Although policies have been introduced to provide tax and financing support for industries and small businesses heavily impacted by the epidemic, service companies were still concerned about uncertainties resulting from the [outbreak],” he added.

Earlier this week, two PMIs released on manufacturing painted a grim picture with factory activity in February contracting at the fastest pace since records began.

“China is running on 20% capacity, so [this is] not a surprise. It will set the lowest point for the year.”

“China is running on 20% capacity, so [this is] not a surprise. It will set the lowest point for the year.”

Hong Hao, the head of research and chief strategist at Bocom 
International

Still, a survey by the China Merchants Bank of more than 20,000 companies underlined the depth of the crisis with most of them from the service sector.

The study conducted last month showed that nearly 20% of those polled faced “severe difficulties.” Nearly 6% said they were on the brink of collapse.

“China is running on 20% capacity, so [this is] not a surprise. It will set the lowest point for the year,” Hong Hao, the head of research and chief strategist at Bocom International, told AFP news agency. “The question now is how fast or how safe can people return to work.”

Wreaked Havoc

The Covid-19 epidemic has also wreaked havoc in Hong Kong with business activity in February plummeting to record lows.

On Wednesday, the IHS Markit headline Hong Kong Purchasing Manager’s Index, or PMI, dropped to 33.1 last month from 46.8 in January.

The previous historic low of 38.1 was recorded during the 2003 SARS epidemic, or Severe Acute Respiratory Syndrome, another coronavirus.

“Measures taken in response to the Covid-19 situation and general fear of being infected saw business activity and new sales sinking at a record pace in an economy that has been beset earlier by political protests and US-China trade war tensions,” Bernard Aw, the principal economist at IHS Markit, said.

“Business confidence [has] plummeted in the city, with a majority of firms anticipating lower future output amid expectations that the coronavirus situation will persist in the coming months.”