China’s recovery picks up speed on rebound in August retail sales

Bloomberg September 15 | Updated on September 15, 2020 Published on September 15, 2020

Consumption in China started reviving as Covid cases started dwindling   -  REUTERS

Industrial production up 5.6% in August, exports rise too

China’s economic recovery sped up in August, led by the first growth in retail sales data since Covid-19 hit early in the year and an acceleration in industrial output.

Retail sales gained 0.5 per cent in August from a year earlier, while industrial production rose 5.6 per cent in the period, the National Bureau of Statistics said Tuesday.

In the first eight months of the year, retail sales fell 8.6 per cent and industrial production increased 0.4 per cent, the first time its risen this year. Fixed-asset investment shrank 0.3 per cent.

Key insights

China’s economy has recovered from the Covid-19 slump early in the year, with industrial output rebounding due to fiscal stimulus and surprisingly strong exports. Pandemic rules compounded by job and income losses have curbed spending on entertainment and travel for most of this year.

Consumption started to recover in August as China’s new Covid-19 cases dwindled toward double figures a day, with retail sales of goods rising 1.5 per cent from a year earlier, while spending on catering and restaurants shrank at a slower pace.

“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 economist at Australia & New Zealand Banking Group Ltd. in Hong Kong.

The government recently unveiled a new strategic 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.

China’s economy has recovered steadily in August as production and economic activities increase, the National Bureau of Statistics said in a statement.

There is still a pressing need to stabilise jobs, businesses and people’s livelihood and we need to strengthen the basis for a continued economic rebound. The gradual loosening of restrictions on services like movies may also provide a boost to consumer spending.

China allowed theatres in areas with low virus risk to resume operations from July 20, though with limits.

Morgan Stanley estimates that China’s box office revenue will normalise in the fourth quarter. 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 central bank added liquidity to financial markets earlier Tuesday while keeping the interest rate the same, to help banks facing a cash squeeze this month.

Unemployment down

The surveyed unemployment rate declined to 5.6 per cent. The housing market has continued to boom, despite the government further tightening property policies. 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 per cent in the first eight months. Investment by state-owned firms slowed to 3.2 per cent growth over the same period, while spending by private firms shrank 2.8 per cent, the best result all year.

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Published on September 15, 2020
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