A recovery with caveats
China’s stats bureau published the monthly econ data for August on Friday.
The headlines:
- Retail sales rose 4.6% y/y in August, up from 2.5% growth in July.
- Fixed asset investment (FAI) rose 1.8% y/y in August, improved from 1.2% growth in July.
- Value-added output at industrial firms rose 4.5% y/y in August, versus a 3.7% increase in July.
The data broadly beat expectations.
Things are looking up, but don’t get too excited: There are some pretty major caveats to the improvement seen in the August data.
For example, the pick up in industrial activity has favored state, rather than private, firms:
- Industrial value-added output increased 5.2% y/y at SOEs but only 3.4% y/y at private companies.
Growth in FAI has also been tilted towards state companies, which increased spending 6.1% y/y.
- Private firms cut spending by 2.2% y/y.
For August’s recovery to be sustained, private participation needs to increase.
The increase in retail sales is a positive sign, but growth remains well down from the 8.1% y/y rate of expansion recorded in 2019 before the pandemic.
- And while a 10bp fall in the urban unemployment rate to 5.2% last month is another good indicator, the stats bureau is still not publishing data for youth unemployment.
Get smart: To maintain last month’s recovery, improved economic activity needs to broaden beyond state-driven growth.
- And that requires boosting businesses confidence – to drive price sector investment – as well as encouraging households to spend and reviving, or at least stabilizing, the real estate sector.