China’s Economy Gains Momentum in August as Retail and Industrial Output Beat Expectations

China’s economic recovery showed signs of picking up in August, as both retail sales and industrial production beat analysts’ forecasts, according to official data released on Friday.

Retail Sales Rebound on Travel and Consumption Boost

Retail sales, a key indicator of consumer spending, rose by 4.6% year-on-year in August, higher than the 2.5% increase in July and the 3.5% projection by Wind, a leading provider of financial information services. The rebound was driven by a surge in travel and consumption during the summer holidays, as well as policy support for the catering, culture and entertainment sectors.

China’s Economy Gains Momentum in August as Retail and Industrial Output Beat Expectations
China’s Economy Gains Momentum in August as Retail and Industrial Output Beat Expectations

The data also showed that online retail sales grew by 9.3% year-on-year in the first eight months of the year, accounting for 25.6% of the total retail sales. Online sales of physical goods rose by 15.7%, while online sales of services increased by 0.4%.

Industrial Production Accelerates on Strong Demand and Policy Stimulus

Industrial production, which measures output from sectors such as manufacturing and mining, climbed by 4.5% year-on-year in August, an acceleration from the 3.7% rise in July and the 3.9% estimate by Wind. The improvement was mainly driven by strong demand for automobiles, electrical machinery and equipment, as well as policy stimulus for infrastructure investment and high-tech industries.

The data also showed that the value-added industrial output of high-tech manufacturing grew by 10.8% year-on-year in August, while that of strategic emerging industries increased by 9%. The industrial capacity utilization rate rose to 77.2% in August, up 0.8 percentage points from July.

Fixed-Asset Investment Slows Down Amid Property Sector Woes

Fixed-asset investment, which includes spending on infrastructure, property and machinery, grew by 3.2% year-on-year in the January-August period, slightly lower than the 3.4% increase in the first seven months of the year. The slowdown was mainly due to the continued weakness in the property sector, which has been plagued by debt stress and weak confidence among homebuyers.

The data showed that investment in the property sector fell by 8.8% year-on-year in the first eight months of the year, widening from the 8.5% decline in the first seven months. The floor space of commercial buildings sold dropped by 18.7%, while the sales revenue of commercial buildings decreased by 14%. The central bank cut the reserve requirement ratio for banks by 25 basis points on Friday, a move that could ease liquidity pressure for developers and homebuyers.

China’s Economy Faces Uncertainties Amid Domestic and External Challenges

Despite the better-than-expected data for August, China’s economy still faces uncertainties amid domestic and external challenges, such as the Covid-19 resurgence, the regulatory crackdown on various sectors, the debt woes of Evergrande Group, China’s largest property developer, and the ongoing trade tensions with the US.

Some analysts have lowered their forecasts for China’s economic growth this year to below the government’s target of above 5%. The International Monetary Fund (IMF) also warned that China’s growth prospects could be affected by a sharper-than-expected slowdown in real estate activity, a further deterioration in US-China relations, or a failure to contain new Covid-19 variants.

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