In August, China’s industrial output growth decelerated to its lowest point in five months. Retail sales and new home prices also continued to decline, strengthening the argument for significant economic stimulus to meet the annual growth target.
The data, released on Saturday, mirrored the weak bank lending figures from Friday, highlighting the sluggish growth momentum of the world’s second-largest economy, valued at $18.6 trillion, in the third quarter.
According to the National Bureau of Statistics (NBS), industrial output in August grew by 4.5% year-on-year, down from 5.1% in July, marking the slowest growth since March. This figure fell short of the 4.8% growth anticipated by a Reuters poll of 37 analysts.
Despite the summer travel peak, retail sales—a crucial indicator of consumer spending—grew by a mere 2.1% in August, down from a 2.7% increase in July. Analysts had anticipated a 2.5% growth, but retail sales have remained sluggish throughout the year.
“The momentum is decelerating… The primary obstacle remains domestic demand,” said Xing Zhaopeng, senior China strategist at ANZ.China’s oil refinery output fell for the fifth consecutive month, and crude steel production in August dropped by 6.1% from July, indicating weak demand.The sluggish economic activity has prompted global brokerages to lower their 2024 growth forecasts for China to below the government’s target of around 5%. The economy grew by 4.7% in the second quarter.“Based on current data trends, Q3 GDP is likely to be lower than Q2. We expect significant stimulus measures to be introduced soon,” Xing added.
On Thursday, President Xi Jinping urged authorities to work diligently towards achieving the nation’s annual economic and social development goals, as reported by state media. This call to action comes amid rising expectations for additional measures to support a sluggish economic recovery. “With the third quarter nearing its end, policymakers have limited time to implement strategies to boost the economy amidst various challenges,” remarked Lynn Song, chief China economist at ING.
The prolonged property downturn has significantly impacted consumer spending in China. In response, some experts have proposed distributing shopping vouchers to encourage spending and counteract the trend. Last month, Premier Li Qiang emphasized the importance of stimulating consumption and exploring measures to boost household income. He highlighted that increasing consumer spending is crucial for economic recovery.
Additionally, a central bank official mentioned last week that China still has room to lower the reserve requirement ratio for banks, which would free up more funds for lending. However, the official also noted that there are constraints in cutting interest rates further, given the current economic conditions. These measures are seen as essential steps to revitalize the economy and ensure it meets its annual growth targets amidst the ongoing challenges.
In the first eight months of 2024, fixed asset investment rose by 3.4% compared to the same period last year, just below the anticipated 3.5% growth. This follows a 3.6% increase from January to July. At a press conference on Saturday, Liu Aihua, spokesperson for the National Bureau of Statistics (NBS), mentioned that China’s economic operations remained stable, despite high temperatures and natural disasters affecting growth last month.
In August, financially strained local governments sped up bond issuance to finance major construction projects. Liu highlighted that this accelerated bond issuance, along with policy initiatives, will support investment growth. However, the struggling property sector remains a significant drag on the economy. In August, new home prices in China fell at the fastest rate in over nine years, with only two out of 70 surveyed cities reporting home price gains both on a monthly and annual basis.
Property sales and investment have declined significantly in the first eight months of the year. To support the housing market, China is considering reducing interest rates on over $5 trillion in outstanding mortgages, potentially as soon as this month, according to Bloomberg News. Despite Beijing’s increased efforts to stabilize the housing market, many analysts believe that more robust measures are necessary to assist debt-ridden developers and attract potential home buyers back to the market.
Other economic indicators released on Saturday were also less than encouraging. China’s nationwide survey-based unemployment rate rose to 5.3% in August, up from 5.2% in the previous month, according to the NBS. This increase is partly due to more college graduates entering the job market in search of employment.One recent positive for China has been its export performance, but analysts are uncertain how long this upward trend will last, given the rising trade tensions with various countries and regions.
Zhiwei Zhang, chief economist at Pinpoint Asset Management, noted that investors will soon shift their focus to growth prospects for 2025. “Will the tight fiscal policy stance persist into next year, especially when global growth is likely to slow down and exert pressure on China’s exports?” Zhang questioned. China’s retail sales and factory output have slowed, reflecting ongoing economic challenges. This deceleration underscores the need for robust policy measures to stimulate growth and stabilize the economy. As global uncertainties persist, China’s economic outlook remains cautious, necessitating strategic interventions to bolster domestic demand and industrial performance.