Coronavirus recovery: what China’s blockbuster August economic data reveals

China’s blockbuster August data shows that the country’s economic recovery has gained further strength after its V-shaped rebound in the second quarter.

All major activity indicators beat market expectations, with industrial output growing 5.6 per cent year on year, and a 0.8 percentage point rise from July, bouncing back to its pre-crisis level much faster than anticipated. Also impressive was the fact retail sales registered their first year-on-year gain, 0.5 per cent, in 2020, rebounding 1.6 percentage points from July.

With other engines – infrastructure investment and exports – continuing to propel the economy, the revival of private-sector growth – consumption and manufacturing investment – has made the recovery more balanced and self-sustaining. Beijing is likely to see this as reassuring, leading it to further fine-tune monetary policy to avoid overstimulation, while relying on fiscal measures to shepherd growth back to previous trajectories.

Delving deeper into the latest data, the supply side of the economy has continued to lead the normalisation process. Industrial output growth speeded up in August as the impact of floods in southern China faded. Mining output resumed expansion, rising 1.6 per cent, thanks to Beijing’s infrastructure push and buoyant residential construction, which also bolstered growth in machinery production (up 15 per cent).

Output of electronics and telecommunication equipment continued to benefit from work-from-home arrangements and an acceleration of the 5G roll-out within China. Finally, a strong rebound in energy production showed that the overall recovery has gained further steam.

On the demand side, while exports have been a constant source of upside surprises, the highlight of the August data is consumer spending. Retail sales grew for the first time in 2020, making it the last sector to exit a protracted recession.