Growth in China's July services activity speeds up, but risks loom

BEIJING (Reuters) - Growth in China's services sector accelerated in July, a private survey showed on Wednesday, although the spread of the COVID-19 Delta variant across the country threatens to undercut the recovery in the world's second-biggest economy.

The Caixin/Markit services Purchasing Managers' Index (PMI)rose to 54.9 in July, the highest since May and up from 50.3 the previous month. The 50-point mark separates growth from contraction on a monthly basis.

The better readings in the private survey, which focuses more on smaller firms in coastal regions, stood in contrast with findings in an official survey on Saturday which showed growth in the services sector retreat slightly in July.

China's services sector has been slower to recover from the pandemic than manufacturing, but has been helped by a gradual improvement in consumption in recent months. A rise in domestic coronavirus infections, however, is threatening to hurt the economy's steady recovery.

The July readings were buoyed by the successful containment of COVID-19 cases in southern China, said Wang Zhe, senior economist at Caixin Insight Group, although he warned that the impact from the latest round of outbreaks since late July was likely to hurt August's PMI readings.

"The economy still faces enormous downward pressure, and we need to ensure business owners remain confident," Wang said.

Since the eastern city of Nanjing confirmed its first Delta cases on July 20, numerous cities in southern China and a few in the north including Beijing, have reported infections. The tally of locally transmitted cases stood at 414 as of Monday.

Tourism is already taking a hit, as local authorities encourage people to stay put to avoid infection, which will be a blow for industries looking forward to peak summer travel demand.

A sub-index of new business in the Caixin survey stood at 54.5 in July, up from 50.5 the previous month. New export orders contracted again due to the resurgence of COVID-19 cases overseas.

Business confidence picked up, although it was still slightly lower than its long-term average. Service sector employment returned to growth in July but the rate of job creation was only slight as firms looked to control costs.

Caixin's July composite PMI, which includes both manufacturing and services activity, rose to 53.1 from June's 50.6.

 

(Reporting by Stella Qiu and Ryan Woo; Editing by Jacqueline Wong)