Chinese consumption, factory activity improves but is still weak

Chinese consumer spending and industrial production increased in August but were still weak, official data showed on Friday and forecasters warned that the second largest economy is vulnerable to repeated city closures to fight virus outbreaks.

Housing sales plummeted as prices fell, adding to a decline in real estate activity under pressure from a government campaign to control rising corporate debt that triggered an economic crisis in mid-2021.

“The Chinese economy held up slightly better than expected last month, but momentum has still weakened,” Julian Evans-Pritchard of Capital Economics said in a report. “September promises to be even worse”.

Chinese leaders are looking to bolster economic growth that fell to 2.5% from a year earlier in the first six months of 2022, less than half the official 5.5% target, without large stimulus spending that could increase debt and housing costs.

Economists say China’s economic growth this year could drop below 3%, less than half of last year’s 8.1%. The ruling Communist Party has stopped talking about being able to reach its 5.5% target.

According to the National Bureau of Statistics, retail sales, one of China’s most important economic drivers, were up 5.4% in August from a year earlier, double the 2.7% growth the previous month. That beat the forecast by 3.3%.

Industrial production grew 4.2%, up from 3.8% in July, but still weak by Chinese standards. Investments in factories, real estate and other fixed assets rose to 5.8% from 5.7% the previous month.

China’s recovery from the pandemic was halted by antivirus measures that shut down Shanghai and other industrial centers starting in March. Those restrictions have been relaxed, but controls have been temporarily reintroduced in Shenzhen’s Southern Mall and other cities to control outbreaks.

The economy “remains at risk of future lockdowns,” ING’s Robert Carnell said in a report.

The ruling party adheres to a “zero COVID” strategy that calls for keeping the disease out of China by isolating each case. Officials responded to complaints about rising economic costs and social disruption by warning that lifting controls will lead to outbreaks that will be more costly and destructive.

Housing sales fell 30.3% from the previous year, reflecting the disruption as builders face stricter limits on debt use. Many buyers seem reluctant to spend after thousands of pre-paid apartments remain unfinished, forcing local authorities in some areas to step in and try to complete them.

Prices paid for new homes have fallen by 0.3% since July.

“As this is a major pool of Chinese household wealth, this won’t help encourage spending,” Carnell said. “These numbers are likely to remain a blot on the economic landscape for quite a while.”

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