China’s economy shows some signs of stabilization, but real estate slump threatens outlook

BEIJING, Sept 15 (Reuters) – China’s factory output and retail sales grew at a faster pace in August, but falling investment in the crisis-hit real estate sector threatens to undermine a raft of support measures that are showing signs of stabilizing parts of the faltering sector. economy.

Chinese authorities face a daunting task as they try to revive growth after a brief post-COVID rebound in the wake of persistent weakness in the crucial real estate industry, a faltering currency and weak global demand for its manufactured goods.

Industrial production rose 4.5% in August from a year earlier, data released Friday by the National Statistics Office (BNE) showed, accelerating from the 3.7% pace in July and exceeding expectations for a increase of 3.9% in a Reuters poll of analysts. The growth marked the fastest pace since April.

Retail sales, a gauge of consumption, also rose at a faster pace of 4.6% in August, helped by the summer travel season, and was the fastest growth since May. That compares with a 2.5% increase in July and an expected 3% increase.

The optimistic data suggests that a series of recent measures to shore up a faltering economy are beginning to bear fruit.

However, a lasting recovery is far from assured, analysts say, especially as confidence remains low in the beleaguered real estate sector and remains a major drag on growth.

“Despite signs of stabilization in manufacturing and related investment, deteriorating property investment will continue to put pressure on economic growth,” said Gary Ng, senior economist at Natixis Asia Pacific.

Markets, however, showed relief from some of the better-than-expected indicators.

The Chinese yuan hit two-week highs against the dollar, while the blue-chip CSI 300 Index (.CSI300) rose 0.2% and Hong Kong’s Hang Seng Index (.HSI) rose 1% in early trading. morning operations.

Further helping sentiment, separate raw materials data showed China’s primary aluminum production hit a record monthly high in August, while oil refinery throughput also rose to a record.

MORE POLITICAL SUPPORT IS NEEDED

Friday’s data followed better-than-expected bank lending figures, which eased declines in exports and imports and eased deflationary pressure.

The country’s passenger vehicle sales also returned to growth in August from a year earlier, as greater discounts and tax breaks for electric vehicles boosted consumer confidence.

To sustain recovery momentum, China’s central bank said on Thursday it would cut the amount of cash banks must hold as reserves for the second time this year to boost liquidity. Earlier in the day, the bank also rolled over maturing medium-term policy loans to inject more liquidity into the financial system.

But analysts say more fiscal and monetary policy measures are needed, given an ailing housing sector, high youth unemployment, uncertainty around household consumption and rising tensions between China and the United States over trade, Technology and geopolitics have raised the bar for a lasting economic recovery in the near future. .

“Yesterday’s reserve requirement ratio (RRR) cut sent an interesting signal that there is a sense of urgency to boost growth,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management, expecting more policies in the coming months to boost the general demand.

Natixis’ Ng said trust remains at the root of most problems that require more significant “constructive policy and regulatory changes” to drive growth momentum.

property decay

The once-mighty real estate sector remains a drag on the $18 trillion economy, and the country’s largest private developer, Country Garden, is the latest to stumble due to a liquidity crunch.

The new industry figures provided little comfort to policymakers and investors. In August, real estate investment extended its decline, down 19.1% year-on-year from a 17.8% drop the previous month, according to Reuters calculations based on NBS data.

“We are still hopeful that home sales will see small sequential rebounds in the coming months, but the stimulus will ultimately stop short of reflating the sector,” said Louise Loo, China economist at Oxford Economics.

Other data, also released on Friday, showed weak investor confidence: private investment contracted 0.7% in the first eight months, deepening from the 0.5% contraction in January-July.

Investment in fixed assets expanded at a slightly slower pace of 3.2% in the first eight months of 2023 compared to the same period a year earlier, versus expectations for a 3.3% increase. It grew 3.4% in the first seven months.

An uncertain business climate meant companies remained cautious about hiring, but the national survey-based unemployment rate improved slightly to 5.2% in August from 5.3% in July.

“Beijing may have to introduce more aggressive real estate easing measures to achieve a real recovery,” Nomura analysts said, echoing a consensus view among China watchers.

“Beijing will likely have to play the role of borrower and spender of last resort once again.”

(1 dollar = 7.2765 Chinese yuan renminbi)

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