China saw its key services sector expand for a sixth consecutive month in October, a new industry survey showed, as the world’s second largest economy continues its post-pandemic recovery.

The Caixin/Markit services Purchasing Managers’ Index (PMI), which reflects sentiment among smaller, private firms, rose from 54.8 in September to 56.8 at the start of the fourth quarter. While the two-point expansion is already considered a substantial increase, it is also the second-fastest growth for business activity since August 2010. The previous record expansion was seen in June this year, when the easing of coronavirus-related lockdown measures boosted consumer demand.

Recovery of service is critical, as it accounts for around 60 percent of the economy and half of urban jobs. October’s expansion was driven by the recovery of domestic supply and demand in the services sector. However, the survey indicated that overseas demand was subdued due to the resurgence of the virus. 

“The second wave of coronavirus infections in Europe and the third wave in the US have significantly suppressed China’s overseas demand,” said Wang Zhe, senior economist at Caixin Insight Group. “The gauge for new export orders remained in contractionary territory, falling from September’s reading.”

Meanwhile, the labor market improved significantly in October, with hiring by Chinese firms accelerating for the third consecutive month to hit the highest level since September 2019.  

According to the poll, enterprises were highly optimistic about the future, as the gauge for business expectations rose to the highest level since April 2012.

Earlier this week a similar industry poll showed that activity in China’s manufacturing sector accelerated at the fastest pace in nearly a decade in October. With most key sectors posting a strong recovery, China is set to become the only major economy to secure growth this year. The International Monetary Fund (IMF) expects China’s gross domestic product (GDP) to rise by around two percent. 

“In the coming months, a continued recovery of the Chinese economy is highly likely, but it is necessary to be cautious about the normalization of monetary and fiscal policies in the post-epidemic period,” Wang said, adding that the epidemic situation in Europe and the US is still “an uncertain factor affecting economic trends.”

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