China’s economy shows signs of modest recovery amid challenges

China’s economic indicators for August revealed cautious improvement as retail sales and industrial production saw modest gains.

Government measures, including interest rate cuts, appeared to be having some positive impact, even though concerns about the real estate sector and banking industry linger.

Despite these developments, foreign economists remained cautious about the nation’s economic trajectory, with the real estate sector remaining a persistent risk.

Property investment plunged nearly 20% year-on-year (y-o-y) in August, and falling apartment prices impacted construction activity.

Prices of new apartments in major Chinese cities declined, although local governments pressured developers not to lower prices further.

Existing home prices dropped significantly, while rents also fell, affecting construction and related sectors, which make up a significant portion of the economy.

Banks faced challenges with loans to property developers, some of which had defaulted, and local governments involved in real estate.

The People’s Bank of China announced measures to ease banks’ reserve requirements and stimulate credit, primarily for local infrastructure projects.

Despite property woes, investment in fixed assets increased by 3.2% for the first eight months of the year, with infrastructure and manufacturing investments offsetting property-related declines.

Semiconductor production surged by 21.1% (y-o-y), with increased government support due to export restrictions.

Retail sales rebounded in August, rising by 4.6% (y-o-y), partly due to higher energy prices. However, this improvement was influenced by the previous year’s stringent Covid-19 measures, indicating a shift in consumer spending patterns.

A main reason retail sales rebounded was that a year ago, people in China were still living under stringent “zero Covid” measures that restricted their activity.

Beer and wine production dropped from a year earlier, while output rose for bottled water, carried by many Chinese people during outdoor activities, and production of fruit and vegetable juices climbed sharply.