China’s factories picked up their pace and retail sales also gained momentum in August, the government reported Friday, suggesting the economy may be gradually recovering from its post-pandemic malaise.

However, despite busy activity in restaurants and stores, the figures showed continuing weakness in the all-important property sector, where real estate developers are struggling to repay heavy loads of debt in a time of slack demand. Investment in real estate fell 8.8% in August from the year before. The decline has been worsening since the beginning of the year.

Acting to relieve the burden on banks, the People’s Bank of China, or central bank, announced late Thursday that the reserve requirement for most lenders would be cut by 0.25 percentage points as of Friday.

That would free up more money for lending, “In order to consolidate the foundation for economic recovery and maintain reasonable and sufficient liquidity,” the central bank said.

Friday’s report showed retail sales rose 4.6% in August from a year earlier, with auto sales climbing 5.1%. Retail sales rose a meager 2.5% in July.

Consumers grew more cautious about spending in the past year, even as China loosened stringent policies to contain outbreaks of COVID-19.

Industrial output grew at a 4.5% annual pace, up from 3.7% in July and the fastest rate since April.

“Overall, in August, major indicators improved marginally, the national economy recovered, high-quality development was solidly advanced, and positive factors accumulated,” Fu Linghui, spokesperson for the National Bureau of Statistics, told reporters.

But Fu added that there were “still many external factors of instability and uncertainty” and that domestic demand remains weak, so that “the foundation for economic recovery still needs to be consolidated.”

The trends in August were somewhat better than expected, Julian Evans-Pritchard of Capital Economics said in a report.

“Fiscal support shored up investment, but the real bright spot was a healthy pick-up in consumer spending, suggesting that households may be turning slightly less cautious,” he said.

China’s economy expanded by 0.8% in the three months ending in June compared with the previous quarter, down from 2.2% in January-March. That is equivalent to a 3.2% annual rate, which would be among the weakest pace in decades.

Roughly one in five young workers is unemployed, a record high, adding to pressures on consumer spending.

The downturn in the housing market, which spills into many other sectors in addition to construction and materials, also has weighed on China’s recovery from severe disruptions of the past several years as the ruling Communist Party tried to eliminate waves of COVID-19 infections.

Share prices advanced Friday after the figures were released, with Hong Kong’s Hang Seng gaining 1.7% while the Shanghai Composite index rose 0.3%.

“There’s a growing sense of optimism among a cohort of investors who believe that Beijing’s recent initiatives to stimulate the economy and stabilize financial markets are showing signs of success,” Stephen Innes of SPI Asset Management said in a commentary. 

leave a reply: