2020.03.0403:56:00UTC+00Coronavirus Outbreak Leads To Sharp Fall In China's Business Activity

China's private sector contracted the most in February as company closures and travel restrictions were put in place due to the coronavirus outbreak, survey data from IHS Markit showed Wednesday.

The Caixin composite output index dropped sharply to 27.5 in February from 51.9 in the previous month. A score below 50 indicates contraction.

The index signaled the sharpest decline in total Chinese business activity on record in February.

"While recent supportive policies for manufacturing, small businesses and industries heavily affected by the epidemic have had a more obvious effect on the manufacturing sector, it is more difficult for service companies to make up their cash flow losses," Zhengsheng Zhong, chairman and chief economist at CEBM Group said. The Caixin services Purchasing Managers' Index plunged to 26.5 in February from 51.8 in January. The score was expected to drop moderately to 48.0.

This marked a sharp decline in business activity that was also the first recorded since the survey began over 14 years ago. Firms faced extended company closures after the Chinese New Year and strict travel restrictions.

Total new business received by service providers fell substantially in February, with the pace of decline the fastest in the series history.

Restrictions around travel also impacted firms' ability to source workers, leading a renewed fall in staff numbers in the service sector. Consequently, backlogs of work rose at a substantial pace. Average selling prices were cut for the third month running in February. Further, uncertainty relating to the coronavirus outbreak weighed on business confidence in February. The degree of optimism among service providers was only moderate, having slipped to a survey low.