China's services sector bounces back into growth, job losses continue

China's services sector returned to growth last month for the first time since January as the economy recovers from strict coronavirus-induced containment measures, although employment and overseas demand remained weak, a private survey showed.

The Caixin/Markit services Purchasing Managers' Index (PMI) rose to 55.0 in May from 44.4 in April, hitting the highest level since late 2010. The 50-mark separates growth from contraction on a monthly basis.

The return to expansion for China's services sector, an important generator of jobs which accounts for about 60% of the economy, was driven by a sharp rise in domestic new business though export orders fell for the fourth month in a row.

Gauges for employment also continued to contract, although at a slower pace.

"Employment in the services sector remained worrisome," said Wang Zhe, senior economist at Caixin Insight Group.

Avoiding mass unemployment is a top government priority, with a target to create over 9 million urban jobs this year.

The economy shrank 6.8% in the first quarter from a year earlier, the first contraction since quarterly records began, and analysts believe it will be months before broader activity returns to pre-crisis levels.

Highlighting the uncertain outlook, the government said in late May it was not setting an annual growth target, for the first time since 2002.

"Demand for services recovered more strongly than that for manufacturing, which was more constrained by sluggish exports amid the ongoing impact of the pandemic's spread outside China," said Wang.

Caixin's manufacturing PMI also showed a return to growth in May but at a slower pace than the services sector, hampered by weak global demand.

Prices charged by service providers were cut for the sixth straight month in May, while input prices dipped slightly.

The findings from the private sector survey, which focuses more on small, export-oriented companies, back an official survey on Sunday which showed momentum in the services and construction sectors quickening.

Caixin's composite manufacturing and services PMI, also released on Wednesday, picked up to 54.5 in May from 47.6 in April.

"In general, the improvement in supply and demand was still not able to fully offset the fallout from the pandemic, and more time is needed for the economy to get back to normal," said Wang.

Beijing has boosted fiscal spending to bolster the economy, which some analysts say is equal to around 5% of China's gross domestic product (GDP). It has also stepped up monetary support, including lowering some of its key interest rates to reduce borrowing costs for companies.