Zhang Mengying

Investing.com – China’s services activity contracted for the third month in a row in May, suggesting a slow recovery despite the world’s second-largest economy easing some COVID-19 curbs.

The reading, which was released earlier, showed an improvement in line with the fact that the country has relaxed some COVID-19 regulations in certain cities, such as Shanghai. The reading was below 50 points, which is the mark that distinguishes between growth and contraction.

Analysts say slow activities in the services sector are likely to persist under the government’s zero-COVID policy, with sectors such as hotels and restaurants hit the hardest.

Caixin’s survey revealed that new orders and export orders fell in May for the fourth consecutive month due to restrictions which kept customers home and disrupted business operations.

Service firms can also lower their payroll.

Caixin’s sub-index for employment stands at 48.5, the lowest since February 2021 and down from 49.3 the previous month.

According to official data, China’s national survey-based unemployment rate rose to 6.1% in April. This is the highest level since February 2020.

“The employment measure has remained in the contractionary territory since the beginning of this year. The epidemic is having an impact on the labour market. Companies weren’t motivated to expand their workforce. As a result, outstanding business (backlogs) in the services sector grew further,” said Caixin Insight Group Senior Economist Wang Zhe in a statement accompanying the data release.

China’s government has announced 33 policies that will help stabilize its economy.

“It’s necessary for policymakers to pay closer attention to employment and logistics. Removing obstacles in supply and industrial chains and promoting the resumption of work and production will help to stabilize market entities and protect the labor market,” said Wang from Caixin Insight Group, adding that the authority should also hand out subsidies for people whose income has been affected by COVID.