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China’s economy strengthens as factory output perks up

Sep 13 2016 09:25
Bloomberg News

Beijing - China’s economy strengthened after July’s hiccup as factory output, investment and retail sales all exceeded economist estimates, amid a boost from property that’s added to concern that price gains may prove unsustainable.

Key points

Industrial production rose 6.3% from a year earlier in August, compared with a median estimate of 6.2% in Bloomberg survey of economists Retail sales climbed 10.6% last month, from 10.2% on July Fixed-asset investment increased 8.1% in first eight months of the year.

Big picture

The reports add to other recent data that have helped shore up confidence in the world’s second-largest economy, including better-than-expected trade and the official factory gauge unexpectedly rising to the highest level in almost two years.

One challenge is that the property market, which has underpinned the recovery, may face headwinds as the government signals that real estate price increases may be unsustainably high.

Economist takeaways

"The economy seems quite stable, so they will not cut interest rates or the required reserve ratio because the current concern is on financial risks and the property bubble," said Larry Hu, head of China economics at Macquarie Securities in Hong Kong.

"You can front load future infrastructure demand to today for two or three years but you can’t do it forever. The whole economy is still adding leverage, especially in the property sector."

"It’s a decent set of numbers and continues to reinforce the message of economic stabilization," said Raymond Yeung, chief economist at Australia & New Zealand Banking Group in Hong Kong. "The government should be comfortable with the figures. The PBOC can now focus on structural reforms such as interest rate liberalization and simply maintain an accommodative environment in the money market."

"The latest signs of stabilization in growth suggest policy will continue rotating toward addressing longer-term challenges," Bloomberg Intelligence economists Tom Orlik and Fielding Chen wrote in a note.

"Further interest rate cuts are unlikely. Even cuts in the reserve-requirement ratio may be more than required, though they could come into play if capital outflows continue."

"The delayed impact of earlier policy easing means that a stronger second half to this year is likely," Julian Evans-Pritchard, economist at Capital Economics in Singapore wrote in a note. "With further monetary easing unlikely in the near-term, this uptick in economic activity is likely to fizzle out going into next year."

"The production and investment data show that growth is stabilizing," said David Dollar, a senior fellow at the Brookings Institution in Washington and former US Treasury attache to Beijing.

"They’re walking a fine line between enough stimulus to achieve 6.5% growth but not so much that risks build up alarmingly. If there’s too much of a rebound they will take away the punch bowl."

The details

Surveyed jobless rate edged up in August but stabilised around 5.1%, NBS spokesperson says at briefing Online retail sales climbed 26.7% this year through August Crude steel output rises 3% in August from year earlier Power output climbs 7.8%.

Property development investment climbs 5.4% in January through August period Home sales value rises 40.1% Private investments in fixed assets rose 2.1% for a second-straight month, matching record low Fixed investment in steel mining and oil and gas both fell more than 30%.

china  |  manufacturing  |  retail  |  economy
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