China’s economy slowed in August, sparking fears of a global recovery

China’s slowdown in growth highlights how the virus continues to challenge the global economic recovery.

China’s economy was hit by tight virus controls and strict property restrictions in August, fueling concerns about the global recovery as countries scramble to control delta outbreaks.

Retail sales growth slowed to 2.5% from a year earlier, much lower than the 7% estimate in a Bloomberg survey of economists, as consumers cut spending during the summer holidays. Investment in construction contracted 3.2% in the eight months of the year, a reflection of the constant tightening of real estate restrictions by the government as part of a campaign against financial risk.

China’s slowdown in growth underscores how the spread of the delta variant of the coronavirus is challenging the global economic recovery from the pandemic. The construction slowdown, which brought China’s steel production to a 17-month low in August, is weighing on the global economy by reducing Chinese demand for commodities like iron ore.

“So far, markets have significantly underestimated the scale of the growth slowdown in the second half,” said Lu Ting, chief economist for China at Nomura Holdings Inc in Hong Kong. Authorities will stick to their “short-term pains for long-term profit” approach and will likely maintain property restrictions, he said.

China introduced tough new travel restrictions to crush an outbreak of the delta variant since late July, leading restaurant and catering sales to contract 4.5% in August from a year earlier after rising 14 , 3% in the previous month. While China managed to quickly control the outbreak, a new group of viruses has developed in southern China this month, suggesting that consumers will remain cautious.

China’s 10-year government bond futures rose for the first time in three days as weak data rekindled expectations of policy easing. The CSI 300 Index trimmed its loss slightly after the data dump, down 0.3% at 1:04 pm in Shanghai.

Main highlights of the data published by the National Statistics Office

  • Retail sales increased 2.5% in August compared to the previous year; the estimate was 7%
  • Industrial production increased 5.3%; the estimate was 5.8%
  • Investment in fixed assets in the first eight months of the year gained 8.9% compared to the same period in 2020; the estimate was 9%
  • The unemployment rate was unchanged at 5.1%

The Chinese government is refraining from extensive stimulus to support the economy, and policymakers are increasing specific programs for smaller companies and promising fiscal support through the use of local government bonds. The BPC maintained its measured policy approach on Wednesday by rolling over its maturing medium-term loans rather than injecting more liquidity.

Many economists expect the People’s Bank of China to lower the reserve requirement ratio for banks again in the coming months after a surprise reduction in July.

The NBS said in a statement that although the economy continued to recover in August, “the international environment is complex and bleak, and the impact of domestic virus outbreaks and natural disasters such as floods is showing on the economy.” The economic recovery “still needs to solidify,” he said.

While consumption should suffer a setback in September, “the economy would remain in a broad downtrend over the next two quarters,” said Larry Hu, China’s chief economist at Macquarie Securities Ltd. in Hong Kong. “The policy should soften the margin through faster issuance of government bonds and a larger share of loans, but it is still too early for controls on local government property and debt to loosen.”

Property curbs

In recent months, Beijing has restricted access to finance for real estate developers and slowed down the pace of mortgage loans to home buyers while trying to avoid the accumulation of financial risks and reduce their economic dependence on the property. Real estate investment growth slowed and real estate sales weakened in August.

At the same time, global demand has remained strong, supporting China’s vast industrial sector despite port congestion problems and high shipping costs. China posted record monthly export figures in August as American and European shoppers increased their orders ahead of the Christmas shopping season.

However, there are risks for manufacturers from rising costs and continuing shortages of computer chips, which have been especially detrimental to the auto industry. Beijing is also trying to limit the growth of heavy industry as part of a push to cut emissions.

“The recovery could see a further slowdown amid further Covid outbreaks,” said Bruce Pang, head of macro and strategic research at China Renaissance Securities Hong Kong. “A cyclical combination of targeted tightening and easing is needed.”



Reference-www.aljazeera.com

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