By Liangping Gao and Ryan Woo
BEIJING (Reuters) -China's service activity grew for a fourth month in April, a private-sector survey showed on Friday, as businesses benefitted from a return toward pre-pandemic levels of demand and output, although the momentum slowed.
The Caixin/S&P Global services purchasing managers' index (PMI) stood at 56.4 in April, above the 50-point mark that separates expansion and contraction in activity on a monthly basis, down from 57.8 the month prior.
The numbers echoed the official PMI released on Sunday which showed also a smaller pace of expansion.
Analysts warn that the momentum could further ease as domestic consumption has yet to fully recover, and that more policy support is needed.
Consumption will require more policy support and stimulus, as growth in corporate profits, people's income and fiscal revenue all lagged behind economic growth in the first quarter, said Bruce Pang, chief economist at Jones Lang LaSalle.
China's economy grew at a faster-than-expected clip in the first quarter, as businesses and consumers shook off the chill of strict COVID curbs that were lifted in December.
But the world's second-biggest economy is facing an uneven recovery and persistent headwinds, with strong activity in services and a contraction in manufacturing.
China's tourism rebounded to pre-COVID levels in the five-day May Day holidays as domestic travel rose by more than two-thirds from a year earlier, government data showed.
The economy will continue to recover in the second quarter but at a slower pace, clearly evidenced by the holiday data - the number of tourists exceeded 2019 levels but total consumption by value was still short of the pre-COVID level, said Nie Wen, an economist at Hwabao Trust.
China's yuan firmed within a narrow range on Friday, buoyed by a weaker dollar, but its strength was capped by the latest data showing a slower pace of economic recovery.
Chinese stocks were slightly weaker.
RISING COSTS
Surveyed services firms' production activity and new orders including new export order expanded for the fourth consecutive month in April.
Caixin group attributed the rise in activity to the return to more normal operating conditions as the impact of COVID-19 continued to fade.
But operating expenses rose to a 12-month-high, driven by higher staffing costs and greater prices for raw materials.
However, efforts to attract new orders limited companies' ability to pass on rising costs to customers.
"It remains to be seen if the economic rebound is sustainable after the short-term release of pent-up demand, with a number of indicators flagging that the recovery has yet to find a stable footing," Wang Zhe, senior economist at Caixin Insight Group, said.
"In the future, relevant policies should focus on expanding domestic demand, stabilising employment and improving expectations, as well as improving the monetary transmission mechanism and creating a virtuous circle of economic development," Wang said.
China will maintain support for the economy, focusing on domestic demand, which remains inadequate, the Politburo, a top decision-making body of the ruling Communist Party, said last week.
Caixin/S&P's composite PMI, which includes both manufacturing and services activity, fell to 53.6 from 54.5 in March, marking the fourth straight month of expansion.