China's service business plunges as virus erases sales – Caixin PMI

BEIJING, March 4 (Reuters) – China's service sector had its worst month ever in February, as new orders fell to their lowest level since the global financial crisis, a survey of businesses said on Wednesday. economists calling for quick support to avoid massive bankruptcies.

The Caixin / Markit Services Purchasing Managers' Index (PMI) almost halved last month to just 26.5 from 51.8 in January. This is the first drop below the 50-point margin that separates growth from contraction on a monthly basis for the first time since the survey began almost 15 years ago in late 2005.

The large correction suggests that more urgent measures are needed to support the sector, which includes many small retailers vulnerable to the coronavirus crisis that erupted in late January.

Commercial activity almost stopped, with tens of millions of people forced to stay at home despite strict travel restrictions, while many restaurants, shopping malls and cinemas were closed, although some provinces lifted restrictions.

"The stagnation of consumption in the midst of the coronavirus epidemic has had a great impact on the service sector," wrote Zhengsheng Zhong, director of macroeconomic analysis at the CEBM Group, in a note accompanying the publication of Caixin PMI.

The crisis in the private sector survey, which focuses more on small export-oriented businesses, echoed an official survey last week, which also showed that activity was declining at a record pace.

Beijing needs a robust service sector to cushion a protracted slowdown in manufacturing and investment and create jobs for laid-off workers in other areas.

President Xi Jinping recently affirmed the country's determination to achieve unspecified predefined economic goals this year, but analysts at Nomura say high-frequency data suggests that production in the first quarter may still collapse.

While new confirmed virus cases have dropped significantly in China, they continue to increase rapidly abroad.

"Although policies were introduced to provide fiscal and financial support to industries and small businesses severely affected by the epidemic, service companies were still concerned about the uncertainties resulting from the epidemic", a said Zhong of the CEBM Group.

THE WORST SALES SINCE THE FINANCIAL CRISIS

China's February services PMI posted the steepest decline in new jobs since November 2008, while back orders hit record highs as many were unable to provide services and temporarily closed shop due to the epidemic.

Demand fell the most at home, but new orders from abroad also fell sharply compared to the previous month. Export demand has declined the most since the start of the sub-index in September 2014.

Service companies lost their jobs for the first time in almost a year and a half, with the employment sub-index reaching its lowest level. At the same time, some companies are struggling to recruit staff due to travel restrictions.

To increase sales, companies lowered their prices for the third time, returning to their most aggressive level in almost eight years. Meanwhile, expectations for the one-year activity outlook have become the darkest since the series began in 2005.

A China Merchants Bank survey of more than 20,000 businesses, mainly in the service sector, conducted in February found that almost 20% of businesses are facing "serious hardship" due to the coronavirus, while nearly 6% are on the verge of collapse.

"While the epidemic has had a more obvious effect on the manufacturing sector, it would be more difficult for service companies to compensate for their cash losses," said Zhong of the CEBM.

Caixin's manufacturing and composite services PMI, also released on Wednesday, slowed to a record low of 27.5 in February from 51.9 in January. (Report by Yawen Chen and Ryan Woo; edited by Sam Holmes)