China's Services Sector Struggles Under Weight Of COVID Containment Measures

China's services sector has contracted for the third consecutive month, according to a private sector business survey, as the country's efforts to contain the COVID-19 pandemic weigh on demand and operations.

The Caixin/S&P Global services purchasing managers' index (PMI) fell to 46.7 in November, marking the lowest level in six months. This indicates a further hit to economic growth in China, as a PMI score below 50 signals contraction.

In November, new COVID-19 infections in China reached record levels, leading to widespread lockdowns in many areas. This has had a significant impact on the country's economy, with analysts at Nomura estimating that areas under lockdown accounted for about 25 per cent of China's gross domestic product (GDP) by the end of the month.

According to a Reuters report, Wang Zhe, a senior economist at Caixin Insight Group, stated that the impact of COVID-19 outbreaks on the economy since October has been significant, and the challenge of balancing the need for COVID controls and economic growth has once again become a key issue.

Wang added that the market urgently needs policies to support employment and stabilize domestic demand. He suggested that the Beijing government should coordinate fiscal and monetary policies to expand domestic demand and increase incomes for poorer segments of the population.

The relaxation of anti-virus measures in certain Chinese cities has been received with mixed emotions. Many individuals are hopeful for a change in policies after widespread civil unrest, but analysts believe that the road to a full reopening will be challenging and may be interrupted by a possible surge in infections during the winter. The Caixin/S&P survey indicated that companies have experienced their largest reductions in output and new projects in half a year, and have continued to decrease their workforce due to a drop in confidence regarding the next 12 months.