China’s Retail Sales Surprise on the Upside, But Property Sector Is Still the Problem Child
Key takeaways
- China’s retail sales and industrial production both smashed targets in August
- Some think China could now hit its 5.1% GDP growth target rate
- However, fixed asset investment came in under expectations thanks to the struggling Chinese property market
With a teetering property industry and concerns over deflation, China’s economic recovery after lifting punitive lockdowns hasn’t exactly gone to plan. But there was a bright spot of good news this week after retail sales in the country were stronger than expected for August.
Industrial production was also up, prompting some to believe China is on track to hit its yearly GDP target. But on the other hand, there are still plenty of warning signs that the Chinese economy is still on life support. Here’s everything you need to know about China’s latest economic stats and what they mean for the country.
What’s happening with the Chinese economy?
China’s retail sales and industrial production both picked up more pace than forecast in August, in a sign of hope for the world’s second-largest economy. Retail sales climbed by 4.6% annually for the month, smashing predictions of 3% growth and markedly increased on July’s 3.7% increase.
Industrial production also rose by 4.5% from a year earlier, which is much better than the 3.9% prediction from analysts and the 3.7% increase seen in July. Out of that category, equipment manufacturing value has risen by 70% compared to last year, while solar cells and service robots (!) also surged by the same rate.
What does it mean for China?
With this latest news, some economists now believe China is on track to hit its 5.1% growth target. But it’s worth noting that fixed asset investment only achieved a 3.2% annual growth rate for August, which fell short of the 3.3% predicted and the previous month’s 3.4% result.
The culprit? Real estate investment dragged down the numbers. That’s supported by average new daily home sales dropping by over 19% in the first days in September, with late August recording a massive 24% decline.
Confidence in China’s property sector has fallen in recent months as one property developer, Evergrande, filed for bankruptcy restructuring in the U.S. Another developer, Country Garden Holdings, has narrowly avoided the same fate after reaching a deal with its creditors.
China has also completely halted reporting its youth unemployment rate since the figures soared to new highs. China’s youth unemployment rate among young people ages 16 to 24 hit a record-breaking 21.3% in June.
The bottom line
It’s difficult to say whether there are tentative signs of a Chinese economic recovery or if the property sector is still dominating the slowdown for the long term. But it’s still good to see the world’s second-largest economy progress towards rebuilding its economy in the post-pandemic era.
Investors will be watching closely to see if the results were a one-off or whether this is a trend towards sustained growth for China’s economy once more.
