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BEIJING — Activity in China’s service sector in February grew at the slowest pace in six months as the sprawling industry reels from the government’s strict lockdown measures to stop the spread of local COVID outbreaks -19, an investigation revealed on Thursday.

The Caixin/Markit Services Purchasing Managers’ Index (PMI) fell to 50.2 in February – the lowest since August and only slightly above the 50-point mark that separates growth from contraction on a monthly basis – compared to 51.4 in January.

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The softer reading contrasts with a slight recovery in service sector growth in an official survey on Monday, although both results point to still weak expansion as the industry remains vulnerable to disruption under the zero- China COVID.

More Chinese cities are battling local COVID-19 cases in recent weeks, with Hong Kong city’s infections rising, though the total number of cases pales in comparison to those in other countries.

A new business sub-index in the private survey came in at 48.8 in February, the first decline since August last year, as service firms reported measures to contain COVID cases, including including travel restrictions, impacting customer demand.

New export business fell for the second straight month, albeit at a slower pace.

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This led to a further reduction in payrolls in Chinese service companies, but the magnitude of the decline has eased.

“Demand for services has contracted, while supply has increased at a limited rate. The spread of COVID-19 in several regions has hurt the business operations of service companies,” said Wang Zhe, senior economist at Caixin Insight Group.

“Policymakers should improve support policies to encourage employment, strengthen structural support for small and medium-sized enterprises, and effectively reduce the tax burden and fundraising costs for businesses,” said Wang of Caixin Insight.

China’s economy rebounded strongly from a pandemic-induced crisis in 2020, although momentum began to wane in the summer of last year as a debt crisis in the property market and strict anti-virus measures have affected consumer confidence and spending.

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Senior officials have pledged to stabilize growth this year and all eyes are on the annual meeting of its top legislature which begins March 5 when the government will unveil economic targets for the year and likely to other stimulus measures.

The survey also showed that inflationary pressures have eased somewhat. An input cost sub-index came in at 52.5, down from 54.5 the previous month, though it marked 20 months of growth.

Confidence in the year ahead, however, rose to its highest level in three months, with businesses expecting a strong post-pandemic recovery.

(Reporting by Stella Qiu and Ryan Woo; Editing by Sam Holmes)

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