BEIJING (Reuters – China’s service activity fell for the third month straight in May. The decline is despite some COVID lockdowns lifted in Shanghai and nearby cities.

Caixin purchasing managers’ index (PMI), a measure of how Caixin services has performed, rose slightly from 36.2 to 41.4 in April to 51.4 in May.

The reading was still well below 50 points, which is the mark that distinguishes between growth and contraction.

Analysts believe that the weakness of China’s service sector which makes up about 60% of China’s GDP and provides half the urban job opportunities, will continue to exist under the government’s zero COVID policy. It is most likely that contact-intensive areas such as hotels, restaurants, and other hospitality businesses, will suffer the worst effects.

A Tuesday survey also revealed that the sector of services was in recession.

Caixin surveys showed that May saw a fourth month of declining new business.

This led to services companies reducing their payrolls more quickly. The sub-index for employment stood at 48.5. It was lower than 49.3 in the previous month and the lowest since February 2013.

According to official data, China’s survey-based unemployment rate rose to 6.1% in April. This is the highest level since February 2020. It also surpasses the government’s target of 5.5% by 2022.

“The employment measure remained at contractionary levels since the beginning this year. The labour market has been affected by the effects of the epidemic. Businesses weren’t motivated to expand their workforce. According to Wang Zhe (Senior Economist, Caixin Insight), “Outstanding business (backlogs in the service sector) grew more.”

China’s April economic activity was impacted by the most severe COVID-19 epidemic since 2020.

China’s cabinet has announced 33 measures to stabilize the political situation during a sensitive year. However, analysts warn that the 5.5% official target for GDP will not be achieved without relaxing the zero COVID strategy.

Policymakers must pay more attention to logistics and employment. “Removing supply chains and industrial barriers and encouraging resumption work and production will help stabilize the market entities and protect labor market,” Wang, Caixin Insight Group said. He also suggested that subsidies should be given to people whose income has been affected by COVID.

Caixin’s composite May PMI (which includes manufacturing as well as services activity) rose to 42.2, from 37.2 in the month before. There was a slight decline in factory activity, but it posted its second highest slump since February 2020. It suggests that the recovery may be fragile.

The Caixin PMI is compiled by S&P Global (NYSE:) from responses to questionnaires sent to purchasing managers in China.