China’s service sector showed little improvement in the first quarter of this year, indicating that consumption remained weak, according to the latest survey by China Beige Book International (CBBI).
Bloomberg reported on March 25 that the latest quarterly report released by China Beige Book International on Thursday showed that fewer service firms borrowed in the first quarter than in the previous three months and that the service sector expansion was sluggish.
Derek Scissors, chief economist at China Brown Book International, said the service sector did not show broader expansion momentum and that although services are not purely a consumer activity, consumption cannot lead the economy if the service sector is not performing strongly enough.
The China Brown Book International report is based on a survey of 4,104 companies conducted between January and March. The report provides a slightly different interpretation of China’s economy than the official Chinese Communist Party data. Official Chinese Communist Party data show that retail sales jumped 34 percent in the first two months of the year compared to the same period last year.
Signs of pressure on growth in China’s service sector were also shown in purchasing managers’ survey data, partly due to travel restrictions imposed by Communist Party officials after a second rebound in the Communist Party’s virus Epidemic during the Yellow New Year holiday in February.
Revenues and profits of Chinese real estate firms fell from the previous quarter, another weak sector in the Brown Book survey.
Real estate is considered by Communist Party officials to be the biggest gray rhino in China’s financial system, and since last year Beijing has moved to curb debt in the sector to reduce financial risk.
The China Brown Book survey showed borrowing activity by state-owned enterprises fell to the lowest level in nearly a decade. Only 13% of SOEs borrowed in the first quarter, compared with 22% in the last three months of 2020. This is the lowest level since the survey began in 2012. By comparison, 24 percent of private companies borrowed in the first quarter of this year, compared with 21 percent in the previous quarter.
According to China Brown Book International, the nominal cost of capital rose to 10.8 percent for state-owned enterprises, compared with 6.9 percent for private companies.
Shehzad Qazi, managing director of China Brown Book International, said, “The reduction in resources received by the most advantaged areas is a good start, but the trend will need to continue for several quarters to fully gain the deleveraging label.”
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