By Ambar Warrick
Investing.com -- Chinese services sector activity surged back into expansion territory in January, a private survey showed on Friday, as the sector took great support from the relaxing of anti-COVID restrictions and the Lunar New Year holiday.
The Caixin Services Purchasing Managers Index (PMI) jumped to 52.9 in January, beating expectations of 51.6 and rising from the prior month’s reading of 48.0. A reading above 50 indicates expansion, with the services sector logging growth after four straight months of declines.
Demand for services shot up after China relaxed most anti-COVID restrictions earlier this year. Three years of intermittent lockdowns saw the services sector benefit from pent-up consumer demand.
The week-long Lunar New Year holiday also saw domestic travel and retail spending rise sharply.
Friday's reading comes largely in line with official government data released earlier this week, which showed that China’s non-manufacturing PMI bounced back into expansion territory in January.
It indicates that the services sector fared far better than manufacturing in the early days of the Chinese reopening, with the Caixin manufacturing PMI remaining in contraction territory through January.
“Both services supply and demand moved into expansion. Although COVID infections remained high, an easing of related containment measures stimulated supply and demand in the sector,” Wang Zhe, Senior Economist at Caixin Insight Group said in a note.
“Lifted travel restrictions also boosted services exports… Businesses expressed greater confidence in an economic recovery following the easing of COVID controls.”
Still, Wang noted that the services sector faced some headwinds from a record-high spike in COVID-19 cases particularly due to staff absences due to illness, and weak prices.
Business confidence increased greatly during the month, amid renewed bets that the Chinese economy will roar back in 2023 following its COVID reopening.
But given that the country is still grappling with its worst COVID-19 outbreak yet, investors remain uncertain over the timing of a bigger economic recovery. Weakening overseas demand, amid recessionary conditions in the rest of the globe, is also expected to weigh on Chinese businesses this year.