Services see another strong month

China's services sector activity expanded for a second straight month in February amid a robust recovery of in-person services, suggesting that the economy is gaining growth momentum, a private survey showed on Friday.

The Caixin China General Services Purchasing Managers' Index, which focuses more on small and medium-sized enterprises and exporters, rose to 55 in February from 52.9 in January, media group Caixin said in a report. The reading was well above the 50-point mark that separates growth from contraction, marking a new high not seen since August.

"Services activity recovered at a faster pace as the most recent wave of COVID-19 infections subsided," said Wang Zhe, senior economist at Caixin Insight Group. "The optimized COVID-19 containment measures continued to drive up both supply and demand."

The report said companies frequently linked the expansion in activity and improvement in demand to the easing of pandemic-related restrictions and reduced disruptions to operations.

The gauges for business activity and total new business both picked up in February, remaining in expansion territory. Amid a recovery of external demand, the subindex for new export orders further improved in February and remained in expansion territory, hitting the highest level since April 2019.

Notably, the rebound in supply and demand conditions led to a strong increase in employment, as services firms have taken on additional workers for the first time in four months. The gauge for employment came in above 50, marking an end to a three-month contraction and hitting the highest reading since November 2020.

According to the report, business confidence across China's services sector remained robust in February, despite the degree of optimism slipping slightly from January's near 12-year high. Services firms expect that the further normalization of activity and a further recovery in customer demand will help drive activity levels higher in the months ahead.

Owing to the improvement in both services and manufacturing sectors, Caixin's composite PMI — which includes activity in both sectors — rose to 54.2 in February from 51.1 in January, the report said.

While the economy is entering a post-pandemic recovery after China optimized its COVID response, the impact of the pandemic remains far-reaching, Wang said.

"Currently, the foundation for economic recovery is not yet solid, and it will take time to fully restore production," Wang said. "As the central government is giving priority to restoring and expanding consumption, relevant policies should focus more on increasing household incomes and improving market expectations in the coming period."

Zhou Maohua, a macroeconomic analyst at China Ever-bright Bank, warned that some SMEs still face pressure and challenges from insufficient demand, high costs of raw materials and financing difficulties.

He said the government needs to further implement stimulus policy measures to ease burdens and stabilize growth, ensure stable prices and supplies of energy and raw materials, and tackle issues faced by SMEs.