A pedestrian passes in front of an Apple Inc. store in the Wangfujing shopping area in Beijing, China, on Friday, February 10, 2023. China’s consumer inflation accelerated last month as economic reopenings and the Lunar New Year holiday stimulated demand, but the rate of rise remains subdued enough to allow the People’s Bank of China to continue monetary easing to support economic recovery. Source: Bloomberg
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China’s investment slump deepened and retail sales growth slowed further in August, but industrial production exceeded expectations as authorities warned of a severe supply-demand imbalance in the country.
Retail sales rose 0.4% in August from a year earlier, the Office for National Statistics said on Tuesday, slowing from the previous month’s 0.6% rise and also below the 0.8% growth expected by economists polled by Reuters.
Industrial production rose 5.2% last month, accelerating from July’s 4.5% rise and beating economists’ expectations for a 4.8% rise.
In the first eight months of this year, investment in urban fixed assets, including real estate and infrastructure investment, fell 7.2% from a year earlier, sharply down from a 6.7% decline in the January-July period and in line with analysts’ expectations.
The unemployment rate in August, based on urban surveys, rose to 5.3% from 5.2% in July, unchanged from the same period last year.
NBS spokesperson Fu Linghui blamed the rising unemployment rate on the graduation season, highlighting stable employment in manufacturing, bright prospects for technical jobs, and growth in the hospitality and catering sectors.
“We should recognize that the negative impact of the external environment is increasing,” the statistics agency said in an English release. The report pointed to a “serious” imbalance between “strong supply and weak demand” in the country, adding that some companies continue to face operational difficulties.
In a statement, the NBS called for stronger macro-policy coordination and boosting domestic demand, while upgrading industries for “innovation-driven” development.
Growth in the world’s second-largest economy slowed to 4.3% in the second quarter, the slowest pace in more than three years, but policymakers have so far resisted more aggressive stimulus, relying instead on incremental steps to boost growth.
move away from the goal
“The market is waiting for fiscal policy to become more supportive in the third quarter,” said Zhiwei Zhang, president of Pinpoint Asset Management, after weak growth in the second quarter. He expects the economy to continue to face downside risks as fiscal support takes time to take effect.
The Chinese government has ramped up bond issuance in recent weeks and expanded loans and interest subsidies for small businesses and consumers, but the People’s Bank of China has promised further policy support without explicitly signaling interest rate cuts.
However, efforts to stimulate appetite for new debt were insufficient. China’s credit expansion in August was much lower than expected, with government bond financing unable to offset weak demand from businesses and households. Banks’ new loans increased by just 60 billion yuan ($8.95 billion), compared to the expected 400 billion yuan ($8.95 billion), down from 590 billion yuan a year earlier, while growth in loan balances slowed to a record low of 4.9%.
Oxford Economics forecasts growth of 4.3% in the third quarter, putting downside risks to the annual growth target of 4.7% and moving further away from the Chinese government’s annual growth target of 4.5% to 5%. He added that although exports and high-tech manufacturing have gained some momentum, sluggish consumption and real estate recession remain the biggest drags on growth.
“September could be a key policy window to revive business confidence ahead of October’s Golden Week holiday,” a team of economists led by Raymond Yong, China economist at ANZ Research, said in a report earlier this month. Further fiscal support is needed, but the chances of cutting policy rates remain low, he added.
But analysts expect Beijing is unlikely to step up meaningful stimulus as long as export growth remains strong enough to keep the economy within target range.
A global investment boom in artificial intelligence is driving demand for Chinese semiconductors and high-tech hardware. The country’s vast oil reserves have also provided an additional cushion against soaring energy prices, allowing the world’s largest oil importer to scale back oil purchases. New orders and production both started to expand in August after contracting in July, according to China’s official manufacturing purchasing managers’ index.
