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China’s Economic Indicators Show Signs of Stabilization Amidst Ongoing Challenges

Sep 18, 2023

Recent economic data from China suggests a glimmer of hope as factory output and retail sales growth accelerated in August. However, the real estate sector, battered by ongoing headwinds, recorded a significant decline in investment. In this comprehensive article, we will analyze the economic situation in China, taking into account both positive and negative indicators, and examine the daunting task of reviving growth in the face of challenges.

1.Accelerating Economic Indicators

Data released by the National Bureau of Statistics on Friday revealed that China’s industrial output in August grew by 4.5% year-on-year, a notable improvement compared to July’s 3.7%. This growth exceeded analysts’ expectations, which had projected a 3.9% increase. It marked the fastest growth since April.

August also witnessed faster growth in retail sales, a key measure of consumer spending, which surged by 4.6%. This marked the fastest pace of growth since May, driven by the peak summer tourism season.

Optimistic data suggests that recent measures aimed at boosting the economy are beginning to yield results. However, analysts caution that a sustained recovery remains uncertain, particularly as the beleaguered real estate sector continues to undermine confidence and serve as a major drag on economic growth.

Gary Ng, Senior Economist for Asia Pacific at Crédit Agricole CIB, commented:

“While there are signs of stabilization in manufacturing and related investment, the deterioration in real estate investment will continue to weigh on economic growth. Confidence remains the root of most problems, and it will take more constructive policies and regulatory reforms to boost growth momentum.”

2.Some Better-Than-Expected Indicators Boost Market Sentiment

In early trading, the Chinese yuan touched a two-week high against the US dollar, while the Shanghai Composite Index rose by 0.2%, and the Hang Seng Index in Hong Kong increased by 1%.

Commodity data showed that China’s aluminum production in August reached a monthly historical high, and refinery throughput also hit a historical high. These developments further bolstered market sentiment.

Bank lending data, narrowing import-export declines, and easing deflationary pressures have also contributed to improved market sentiment. Additionally, the confidence of consumers received a boost in August due to greater discounts and tax incentives for electric vehicles, leading to a year-on-year rebound in private car sales.

The People’s Bank of China had previously announced plans for a second reduction in bank reserve requirements this year, aimed at increasing liquidity.

However, analysts emphasize that persistent challenges, including the weakened real estate sector, high youth unemployment rates, consumer spending uncertainties, and escalating tensions in China-US trade, technology, and geopolitics, elevate the threshold for achieving a sustained economic recovery. Consequently, more fiscal and monetary policy measures may be required.

Zhang Zhiwei, Chief Economist at Pinpoint Asset Management, remarked, “Yesterday’s reserve requirement ratio cut sends an interesting signal, indicating a sense of urgency to promote growth. It is expected that more policies will be introduced in the coming months to boost overall demand.”

3.Real Estate Remains a Drag

Despite past strength, the real estate sector continues to weigh heavily on the economy, with China’s largest private developer, Evergrande, recently facing liquidity challenges.

The latest industry data hasn’t offered much solace. According to calculations based on National Bureau of Statistics data, real estate investment in August continued its decline, falling by 19.1% year-on-year, following a 17.8% drop the previous month.

Louis Kuijs, China economist at Oxford Economics, stated, “We still expect that home sales will see a modest, gradual pickup over the coming months, but stimulus measures will ultimately not lead to a full-blown reflation of the sector.”

Analysts at Nomura Securities noted, “China may need to roll out more aggressive real estate easing measures for a genuine recovery.”


China’s economic landscape is a mix of promising indicators and persistent challenges. While factory output and retail sales growth have shown signs of improvement, the real estate sector’s struggles and other economic uncertainties continue to pose significant hurdles. As China navigates its economic recovery path, policymakers must carefully balance various factors to ensure sustained growth while addressing sector-specific issues like real estate and employment.