A key index measuring the strength of China’s massive services sector jumped to its highest level in more than a decade, as the country’s economic recovery gained traction.
The official non-manufacturing Purchasing Managers’ Index (PMI) soared to 58.2 in March from 56.3 in February, marking the best level since 2011, according to the National Bureau of Statistics (NBS). The index measures business activity in the services and construction industries.
The services sector is crucial to China’s economy and jobs. It accounts for 55% of GDP and 48% of employment.
It was hit hard by the country’s draconian zero-Covid policy, particularly industries such as tourism, catering and retail.
“The official PMIs suggest that China’s rapid reopening recovery remained robust this month,” Capital Economics analysts wrote on Friday.
“The weak global backdrop weighed on manufacturing, but services continued to benefit from a resurgence in consumer spending and construction was buoyed by fiscal support.”
Covid restrictions were suddenly scrapped late last year following mass street protests and as local governments were running out of cash to pay huge Covid bills. Following a brief period of disruptions after Covid tore through the population, the economy started showing signs of recovery from December.
The NBS also indicated that the official manufacturing PMI reached 51.9 in March, slightly lower than February’s 52.6, but still in expansion territory. Any PMI reading above 50 indicates expansion, while levels below that represent contraction.
The strong PMI data immediately lifted investor sentiment. The Chinese yuan pulled higher against the US dollar.
The offshore yuan, which trades more freely than its onshore counterpart, strengthened as much as 0.4% to 6.844 per dollar. It was last up 0.1% to 6.871 per dollar. The onshore rate, which trades in mainland China, also gained 0.04% to 6.867 per dollar.
“In light of deteriorating EU and US growth outlook after the banking turmoil, foreign investors are now more willing to park their capital in Chinese investment,” said Ken Cheung, chief Asian foreign exchange strategist for Mizuho Bank.
“We believe that equity inflow[s] will support our view of mild RMB appreciation this year.”
Friday’s data reinforced Premier Li Qiang’s upbeat remarks at a business forum in Boao, Hainan this week. In a keynote speech, the newly minted premier told more than a thousand international business and political leaders that China’s economic growth was “strong,” with March’s performance even better than January and February’s.
China has rolled out a number of measures in recent weeks to boost sagging growth and lift business confidence.
Earlier this month, the People’s Bank of China made a surprise rate cut to keep money flowing through the financial system and prop up the real economy.
Around the same time, the commerce ministry announced that for the first time ever, it would launch an “Invest in China Year” in 2023 to welcome foreign companies.
Top economic officials have also been trying to reassure both foreign business and the domestic private sector.
Earlier this week, Li met a group of global CEOs in Beijing, including Apple’s Tim Cook, promising the country will open its door “wider” to foreign trade and investment.