China’s economic recovery ‘unstable, uneven’ as retail sales, industrial production growth slows

Retail sales and industrial production grew by 8.5 per cent and 6.4 per cent, respectively, in July from a year earlier
Fixed-asset investment grew by 10.3 per cent in the January-July period, while the surveyed jobless rate stood at 5.1 per cent in July, from 5 per cent in June

China's economic recovery

Orange Wang

Published: 10:00am, 16 Aug 2021

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China’s economic slowdown continued in July, data released on Monday showed, with both industrial production and retail sales falling short of expectations.

Industrial production, a gauge of activity in the manufacturing, mining and utilities sectors, grew by 6.4 per cent in July from a year earlier after a 8.3 per cent rise in June. July’s figure was below the median forecast of the Bloomberg survey for a rise of 7.9 per cent.

Retail sales, a key measurement of consumer spending in the world’s most populous nation, grew by 8.5 per cent in July, down from the 12.1 per cent increase in June, and below the projection for a 10.9 per cent rise estimated in the Bloomberg survey.

Fixed-asset investment – a gauge of expenditures on items including infrastructure, property, machinery and equipment – grew by 10.3 per cent in the January-July period compared with a year earlier. This was below the median of the Bloomberg survey, which called for an increase of 11.3 per cent. For the January-June period, fixed-asset investment had been up by 12.6 per cent.

“Given the combined impact of sporadic local outbreaks of Covid-19 and natural disasters on the economy of some regions, the economic recovery is still unstable and uneven,” said NBS spokesman Fu Linghui.

“We should not only look at the growth to analyse the economic situation, but also need to look at the overall picture of employment, prices and residential incomes.”

The surveyed jobless rate, an imperfect measurement of unemployment in China which does not include figures for the tens of millions of the nation’s migrant workers, stood at 5.1 per cent in July from 5 per cent in June.

China has set a target of creating 11 million new urban jobs and a surveyed urban unemployment rate of 5.5 per cent for this year.

China’s economy grew by 7.9 per cent in the second quarter of 2021 compared with a year ago, while in the first half of the year, it grew by 12.7 per cent year on year.

But economists have since slashed their economic outlook for China as the Delta variant spreads across the world’s second-biggest economy, forcing the closure of restaurants and entertainment venues and the cancellation of numerous high-profile trade events.

The highly-infectious coronavirus mutation has grown quickly since an outbreak in Nanjing last month, leading to tightened control measures in many provinces and raising fears of a further slide in consumer spending.

At the start of July, Goldman Sachs cut its quarterly growth forecast to 2.3 per cent from 5.8 per cent for the third quarter, while also trimming its full-year forecast to 8.3 per cent from 8.6 per cent.

There was a broad-based slowdown in all the key indicators last month. This partly reflects disruptions to consumer activity due to the recent virus flare-up and flooding in central China

Julian Evans-Pritchard

“There was a broad-based slowdown in all the key indicators last month. This partly reflects disruptions to consumer activity due to the recent virus flare-up and flooding in central China,” said Julian Evans-Pritchard, senior China economist at Capital Economics, who added that the July figures were generally much weaker than expected.

“But investment spending and industrial activity, which are less sensitive to virus restrictions, also weakened markedly, suggesting that tighter credit conditions are biting.

“The drop back in consumption should reverse once the virus situation is brought under control and restrictions are lifted. But we think the slowdown elsewhere will deepen over the rest of the year.”

Data earlier this month also showed export growth, which has been a key driver of China’s rebound from the coronavirus slump in early 2020, unexpectedly slowed in July.

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“Further ahead though, we think there is still scope for rises in consumption as the virus situation comes under control and the vaccination roll-out broadens. But any bounce in consumption coming out of the pandemic is likely to be more than offset by growing headwinds to investment and exports.

“Although the People’s Bank of China has relaunched efforts to push down borrowing costs, as yet there are few signs that it intends to relax quantitative controls on lending and reverse the recent slowdown in credit growth, which will weigh on capital spending in the coming quarters.

And foreign demand for Chinese goods is likely to come off the boil over the coming quarters as vaccine roll-outs and reopening help to normalise global consumption patterns.”