China’s retail sales growth plunged in August, impeding economic recovery

Retail sales and industrial production rose by 2.5 per cent and 5.3 per cent, respectively, in August from a year earlier
Fixed-asset investment grew by 8.9 per cent in the January-August period, while the surveyed jobless rate stood at 5.1 per cent in August, unchanged from July

China's economic recovery

Orange Wang

Published: 10:10am, 15 Sep 2021

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Retail sales growth in China slumped heavily in August further, accentuating the slowdown in the Chinese economy, the latest economic data shows.

Both industrial production and fixed-asset investments growth in August also fell short of expectations, pointing to more softening in the economy.

Retail sales, a key measurement of consumer spending in the world’s most populous nation, grew by a mere 2.5 per cent in August compared with a year earlier, way down from the 8.5 per cent increase in July, and much lower than the projection for a rise of 7 per cent estimated in the Bloomberg survey.

Industrial production, a gauge of activity in the manufacturing, mining and utilities sectors, grew by 5.3 per cent in August from a year earlier after a 6.4 per cent gain in July. August’s figure was lower than the median forecast of the Bloomberg survey for a rise of 5.8 per cent.

Notably, revenue in the catering industry during August fell 4.5 per cent compared with a year earlier, marking a sharp reversal from the 14.3 per cent growth in sales in July.

“The hit to service activity from last month’s virus outbreak was even larger than we, and other forecasters, had anticipated,” said Julian Evans-Pritchard, senior China economist at Capital Economics. “The rest of the economy held up better, although the headwinds facing the property sector appear to be intensifying.”

Fixed-asset investment – a gauge of expenditures on items including infrastructure, property, machinery and equipment – rose 8.9 per cent in the January-August period, compared with a year earlier. This was lower the median of the Bloomberg survey, which called for a rise of 9 per cent. For the January-July period, fixed-asset investment had been up by 10.3 per cent.

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

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 prior, 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.

Last week, it was confirmed that China’s factory-gate price inflation remained high in August, rising to the highest level in 13 years.

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But last month’s trade data, which was also released last week, showed China’s imports and exports both defied analysts’ expectations last month as exports rose by 25.6 per cent in August from a year earlier and imports rose by 33.1 per cent in August from a year prior.

The Chinese economy maintained the trend of recovery in August, but the foundation still needs to be consolidated, according to Fu Linghui, spokesman for the National Bureau of Statistics.

“We must be aware that the international environment is still complicated and severe, and at home it has been felt that the sporadic outbreaks of Covid-19 and natural disasters such as floods have impacted the economy,” he said at a press conference on Wednesday.

Looking forward, Evans-Pritchard said expectations may change for September.

“We had been expecting services activity to rebound strongly in September as the virus situation was back under control,” he said. “However, a jump in [coronavirus] cases in Fujian province this week suggests the recovery might be held back.”