The S&P Global PMI composite index for China rose from 48.3 in December to 51.1 in January, indicating that China's economy expanded after four consecutive months of contraction. The business activity index for China's services sector, also published today, rose sharply from 48.0 in December to 52.9 in January, while the manufacturing PMI survey, released earlier in the week, showed ongoing contraction but at a slightly less pronounced rate, with its headline index rising from 49.0 to 49.2

These improvements were less pronounced than official CFLP PMI survey data which showed a very strong rebound in both the manufacturing and the non-manufacturing sectors in January. After easing public health restrictions late last year, authorities have reported a decline in Covid-19 cases in recent weeks, and PMI data released this week suggest this improvement in public health conditions may be starting to drive improved economic conditions.

Respondents to the service sector survey reported the first increase in output and new orders in five months in January and the biggest increase in new export orders since April 2022. Payrolls were reported to have been cut at a slower pace, with respondents noting substantial staff absences due to illness. The survey shows much improved confidence about the outlook, with this indicator surging to its highest level in nearly 12 years. Respondents also reported a bigger but still subdued increase in input costs but little change in selling prices.

PMI surveys are one of the few Chinese economic indicators that show January data separately. Most official economic data for China are not reported separately for January and February but are instead combined and reported together in order to remove distortions caused by changes in the timing of lunar new year holidays each year. This means that most official data for the first two months of the year will not be reported until mid-March.

After rising more than a point to 48.0 in December, Caixin's services PMI in January is expected to rise a more sizable 3.6 points to 51.6.

The S&P China Services PMI is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 400 private service sector companies. The panel has been carefully selected to accurately replicate the true structure of the services economy.

The S&P China Composite PMI is a weighted average of the Manufacturing Output Index and the Services Business Activity Index, and is based on original survey data collected from a representative panel of over 800 companies based in the Chinese manufacturing and service sectors.

The PMIs have developed an outstanding reputation for providing the most up-to-date possible indication of what is really happening in the private sector economy by tracking variables such as sales, employment, inventories and prices. The indexes are widely used by businesses, governments and economic analysts in financial institutions to help better understand business conditions and guide corporate and investment strategy. In particular, central banks in many countries use the data to help make interest rate decisions. PMI surveys are the first indicators of economic conditions published each month and are therefore available well ahead of comparable data produced by government bodies.