China's economic landscape in August presented a mixed picture, with retail sales growth slowing and investment continuing to slump, while industrial output exceeded expectations. According to data released by the National Bureau of Statistics on Tuesday, retail sales in August grew by just 0.4% compared to the same month last year, down from July's 0.6% and falling short of the 0.8% growth predicted by economists in a Reuters poll.
In contrast, industrial output showed resilience, expanding by 5.2% in August, an improvement from July's 4.5% and surpassing the forecasted 4.8% rise. However, the broader economic picture remains challenging. Urban fixed-asset investment, which includes property and infrastructure, shrank by 7.2% in the first eight months of the year, a deeper decline than the 6.7% drop recorded from January to July, aligning with analysts' expectations.
The urban survey-based unemployment rate edged up to 5.3% in August from 5.2% in July, remaining unchanged from the same period last year. Fu Linghui, a spokesperson for the National Bureau of Statistics, attributed this slight increase to the graduation season. He noted, however, that employment in manufacturing remained stable, with promising prospects in technology, hospitality, and catering sectors.
The statistics bureau highlighted a significant domestic imbalance between strong supply and weak demand, warning of intensified adverse impacts from the external environment. It called for enhanced macro-policy adjustments and efforts to boost domestic demand, alongside advancing industrial upgrades through innovation-led development.
Despite the slowdown, policymakers have been cautious about implementing aggressive stimulus measures, opting instead for incremental steps to support growth. The economy's growth rate slowed to 4.3% in the second quarter, marking the weakest pace in over three years. Zhiwei Zhang, president at Pinpoint Asset Management, noted that the market is anticipating more supportive fiscal policies in the third quarter, although he cautioned that fiscal support would take time to manifest its effects.
Recent efforts by Beijing to invigorate the economy include increased government bond issuance and expanded loan-interest subsidies for small businesses and consumers. The central bank has also pledged further policy support, though it has not signaled an explicit rate cut. Despite these measures, demand for new debt remains tepid, with government bond financing unable to compensate for sluggish corporate and household demand.
New bank loans in August expanded by only 60 billion yuan ($8.95 billion), a significant drop from the 400 billion yuan forecast and down from 590 billion yuan a year earlier. Outstanding loan growth also slowed to a record-low 4.9%.
Oxford Economics has projected third-quarter growth at 4.3%, posing risks to its annual growth target of 4.7% and diverging further from Beijing's target of 4.5% to 5%. Weak consumption and the ongoing property slump are major drags on growth, although exports and high-tech manufacturing have provided some momentum.
Economists at ANZ Research, led by Raymond Yeung, suggested that September could be a crucial period for policy adjustments to revive business confidence ahead of October's Golden Week holidays. They emphasized the need for more fiscal support, though a policy rate cut remains unlikely.
Analysts believe that as long as export growth continues to bolster the economy, Beijing is unlikely to significantly increase stimulus measures. The global investment boom in artificial intelligence has boosted demand for Chinese semiconductors and tech hardware, while China's substantial oil reserves have provided a buffer against rising energy prices, allowing the country to reduce oil purchases.
In August, China's official manufacturing purchasing managers' index indicated a return to expansion in new orders and output after a contraction in July, signaling some positive momentum amid broader economic challenges.
