China’s economic recovery from Covid-19 accelerated, spurred by a rebound in consumption as virus restrictions eased and larger-than-expected gains in industrial output.
Retail sales rose for the first time this year in August, by 0.5% from a year earlier, while industrial production expanded 5.6%, against a forecast of 5.1%. In the first eight months, retail sales slid 8.6%, industrial production advanced 0.4%, and fixed-asset investment was 0.3% lower than the same period in 2019, the National Bureau of Statistics said yesterday.
The data show the world’s second-largest economy in recovery from the first-quarter slump, in stark contrast to nations still struggling with virus outbreaks, lockdowns and economic contraction. In China, fiscal stimulus and surprisingly strong exports first boosted industrial output. Now, the return to growth in retail spending shows private demand is also starting to claw back losses earlier in the year.
China’s new daily Covid-19 cases dwindled toward double figures in August and the government continued lowering social distancing restrictions. Consumers responded to that success, with retail sales of goods up 1.5% from a year earlier, while spending on catering and restaurants shrank at a slower pace.
Yesterday’s positive data were among considerations cited by Australia & New Zealand Banking Group Ltd. in raising its prediction for China’s economic expansion this year to 2.1% from 1.8%. ANZ’s China economists led by Raymond Yeung noted a robust recovery in the services industry and the news that China will have vaccines ready by year-end.
“If China continues to control the virus as it did in the past few months, it will mean a stable domestic environment for a steady recovery for the rest of this year,” said Betty Wang, senior China economist at ANZ in Hong Kong.
The gradual loosening of restrictions on services like movies will provide a boost to consumer spending. China allowed theaters in areas with low virus risk to resume operations from July 20, though with limits. Box office revenue recovered in late August to about 90% of the level seen in the same period last year, according to the statistics bureau, and Morgan Stanley estimates box office revenues will normalize in the fourth quarter.
The increasingly strong recovery will be welcome news for the central bank, which has been trying to stimulate the economy without flooding financial markets with money. The People’s Bank of China added liquidity to markets earlier yesterday to help banks facing a cash squeeze, but kept the interest rate the same.
This data “reduced the need for interest rate and RRR cuts. For now, the PBOC will focus on managing liquidity in order to keep short-term interest rates anchored at the policy rates,” said Michelle Lam, Greater China economist at Societe Generale SA.
The housing market has also continued to boom, despite the government tightening property rules. Home-price growth accelerated in August after a brief slowdown the previous month, indicating the curbs have done little to damp buyer enthusiasm. Funding for property rose 3% in the first eight months.
Investment by state-owned firms slowed to 3.2% growth over the same period, while spending by private firms shrank 2.8%, the best result all year.
An aggregate view by Bloomberg’s economists suggested that although China’s economy will continue to pick up, the unstable recovery in global demand due to renewed virus flare-ups in many parts of the world means China’s recovery will depend more heavily on domestic growth drivers.
“A Chinese economy on steadier footing relative to earlier this year should allow the government to focus on policy implementation to squeeze the most out of a range of measures already in place,” said Chang Shu, chief Asia economist. But “the door remains open” for the PBOC to guide interest rates incrementally lower by the year-end.
The government has recently unveiled a new plan which aims to boost domestic consumption and also make more critical technology at home amid rising geopolitical tensions and the possibility of a resurgence in the coronavirus.
While the surveyed unemployment rate declined to 5.6%, an unemployment indicator that covers mainly college graduates rose 5.4 percentage points in the month. That would usually fall at this time of year.
China is beginning to have real growth, but it’s still far from the levels seen after the global financial crisis, Nobel laureate Joseph Stiglitz told the Foreign Correspondents’ Club in Hong Kong in a videoconference yesterday, before the data were released. “Those numbers are nowhere near enough to fuel a global recovery,” he said. Bloomberg
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