China Can Smile Again

Image source: anaken2012 - Shutterstock

What's going on?

Data released on Friday provided a glimmer of hope for the Chinese economy.

What does this mean?

Chinas economic reports have read like British weather forecasts lately, with little sunshine and non-stop rainy days. But at long last, here comes a bright spell: Chinese retail sales a telling metric in the worlds biggest consumer market were up 5.4% in August versus the same time last year, well above the 3.5% that economists had predicted. Whats more, overall industrial production (things like factory output) managed to grow 4.2% last month, despite dips in major categories like cement and steel.

Still, Chinas good news came with some caveats. For one, the countrys been subsidizing electric vehicles by halving the tax on new passenger cars, and those handouts have been behind much of the countrys boosted sales and production. And for another, industrial output was spurred on by a jolt in electricity production during the summers heatwave and thats unlikely to continue for long.

Why should I care?

Zooming in: Real estate recession.
Despite the somewhat reassuring figures, Chinas domestic demand is still pretty feeble. Thats especially obvious in the countrys all-important property market: Chinese developer Country Garden said last month that real estate had slid rapidly into severe depression. And that wasnt an exaggeration: the Chinese property market has experienced more contractions than an entire labor ward lately, with separate data showing home prices have now declined every month for the past year.

The bigger picture: Touch-and-go growth.
The Chinese governments been upping its game in a bid to spur growth, spending freely on infrastructure and cutting key interest rates. Its likely to keep that up too, which might be why Bank of America economists still believe Chinas economy could grow 3.5% this year even as the country sticks to its industry-shrinking zero-Covid strategy and prepares to tackle a situation that many have called more daunting than 2020.

Originally posted as part of the Finimize daily email.

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