Chinese economic activity data signals optimism after stimulus measures

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Data on Friday showed China’s retail sales and industrial production grew faster than expected in August, a rare boost after policymakers stepped up stimulus measures to support the world’s second-largest economy and cope with a loss of momentum.

Industrial production increased by 4.5% year-on-year in August, while retail sales, which has been a weak consumer indicator, increased by 4.6%. Both measures beat analysts’ expectations, with July growth rates of 3.7% and 2.5% respectively.

China’s economy has struggled to rebound after lifting three years of strict anti-epidemic measures at the beginning of the year, with a slowdown in the real estate sector, a collapse in trade and sluggish consumer demand hurting confidence.

Other aspects of the data released on Friday highlighted the challenges Beijing faces in meeting its annual growth target of 5%, the lowest level in decades.

The growth rate of fixed asset investment slowed to 3.2% in the first eight months of this year, compared with 3.4% as of the end of July, while the price of new residential buildings in 70 major cities fell by 0.3% month-on-month. Real estate investment fell 8.8% from January to August.

China’s CSI 300 index reversed losses on Friday and rose 0.1% after the data was released.

In recent weeks, policymakers have unveiled a series of stimulus measures to boost economic growth and support the housing market and currency. The People’s Bank of China lowered the bank deposit reserve ratio by 0.25 percentage points to 7.4% on Thursday, effectively adding liquidity to the financial system.

Zhang Zhiwei, chief economist at Pindian Asset Management, said the rate cut sent a signal that “people have a sense of urgency to promote growth,” adding that he expected further policy moves in the coming months.

The central bank said on Friday that it would keep its one-year medium-term lending rate unchanged at 2.5%. Last month, China’s central bank unexpectedly cut interest rates by 0.15 percentage points as part of broader easing measures, which affected lending by financial institutions.

In recent weeks, major cities have also begun to lift price restrictions on home purchases, including lowering minimum mortgage rates and down payments, signaling growing pressure to address a two-year real estate cash crunch that has weighed on construction activity and local government finances. .

Country Garden, once China’s largest private developer by sales, came close to defaulting this summer, with recent troubles raising concerns about spillover effects from the property market on the broader economy and financial system.

On Friday, another Chinese developer, Sino-Ocean Group, suspended repayments on all overseas borrowings “in response to increasing liquidity pressures” including a “rapid decline in contracted sales.”

Positive industrial production and retail sales data added to recent signs of temporary improvement in data releases.

China’s consumer prices turned negative in July before recovering slightly in August, while exports and imports fell by 8.8% and 7.3% respectively from the previous month in July.

The government also announced last month it would stop publishing youth unemployment figures after they reached record levels.

Additional reporting by Hudson Lockett in Hong Kong

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