(Yicai Global) June 5 -- Activity in China's service sector expanded to the highest level in two and a half years in May, as post-Covid consumption continued to lead the nation’s economic recovery, according to the findings of a widely watched private survey.

The Caixin services purchasing managers' index stood at 57.1 in May, up from 56.4 in April, extending gains to a fifth month, data released today by financial media group Caixin showed. A reading above 50 indicates expansion.

The Caixin China comprehensive PMI rose to 55.6 last month from 53.6 in April, a new high since 2021, driven by the services and manufacturing sectors, showing the accelerated expansion of production and operations. The Caixin manufacturing PMI was 50.9 in May, returning to expansion territory after two months.

The official manufacturing and services PMIs for May, published by the National Bureau of Statistics, fell 0.4 and 1.3 percentage point to 48.8 and 53.8, respectively.

The official gauges are compiled by the government and comprise 3,000 firms, most state-owned, whereas the Caixin PMI tracks 500 businesses that are generally smaller and privately owned.

The service sector’s strength compared with the manufacturing industry is still a prominent feature of the Chinese economy, but its employment and market expectations weakened last month, said Dr. Wang Zhe, senior economist at Caixin Insight Group.

The worse employment situation, falling price levels, and waning optimism in the manufacturing sector indicate that “economic growth lacks internal drive and market entities lack enough confidence, highlighting even more the importance of expanding and restoring demand," Wang said.

The services sector's sub-indexes for business activity and new orders rebounded a little in May, reaching the second-highest level since December 2020. Previously suppressed demand was released, and business conditions gradually returned to normal after China eased its Covid-19 controls, according to the companies surveyed. But export orders fell to the lowest this year, they added.

The services employment sub-index slipped, but stayed above 50. Companies need to enhance production capacity and fill vacancies as the market has rebounded, the survey’s participants noted. Rising labor and raw material costs fueled higher production costs, with the input price sub-index staying above 50.

The services business operation expectations sub-index fell for the fourth straight month to the lowest this year, but was above last year's average. Growth expectations remain supported by a strong recovery after Covid controls were lifted, stronger customer demand, and company expansion plans, the respondents pointed out.

Editor: Martin Kadiev