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China’s economic recovery is under way as consumer comeback remains elusive

BEIJING (Reuters) – China’s retail sales slipped in July, pushing expectations for a modest increase as consumers in the world’s second-largest economy failed to shake up the coronavirus while the factory sector’s recovery struggled to pick up speed.

FILE PHOTO: People wear protective face masks as seen in a shopping complex following an outbreak of coronavirus (COVID-19) in Beijing, China July 17, 2020. REUTERS / Thomas Peter

Asian markets retreated Friday after the disappointing set of economic indicators that raised concerns about the fragility of China’s emergence from coronavirus.

China’s recovery had gained momentum after the pandemic paralyzed huge chunks of the economy as rising demand, government stimulus and surprisingly elastic export revived activity.

However, data from July from the National Bureau of Statistics on Friday showed weaker-than-expected annual growth in manufacturing output and retail sales extend the decline to a seventh month. This was slightly offset by firmer real estate investments, which showed that the recent stimulus supported construction.

Some analysts attributed the loss of momentum in the economy to the heavy rains that have flooded southern China since June and several recent COVID-19 eruptions that led to partial shutdowns.

“Although there may be a modest rebound in some investment activity if the floods subside in the coming months, we expect the subsequent recovery momentum to be weaker in the second half of the year,” Nomura analysts said in a note, citing declining factors. demand became less the chances of more policy easing and rising tensions between the US and China.

Industrial production increased 4.8% in July from the previous year, in line with June’s growth, but less than an expected increase of 5.1%.

Retail sales fell 1.1% year-on-year, missing forecasts for a 0.1% increase and after June’s 1.8% decline.

The decline in retail sales was largely based on clothing, cosmetics, household appliances and furniture, all of which worsened from June.

A major exception was car sales, which rose 12.3%, reversing from a fall of 8.2% in June.

“Despite narrow declines in investment, consumption remained weak, highlighting the lasting economic shock of the coronavirus pandemic,” said Zhang Yi, chief economist at Zhonghai Shengrong Capital Management.

“Given that we are likely to see a resurgence of COVID in the autumn and winter, it is not recommended that monetary policy be tightened too soon and that fiscal policy remain inadequate.”

China’s nationwide survey-based unemployment rate for July remained high at 5.7%, the same as June.


Helping bear the recovery, however, were investments driven by the rapid expansion in the real estate sector, with analysts expecting infrastructure spending to accelerate in the coming months amid government support.

China’s economy returned to second-quarter growth after a deep decline at the beginning of the year, but unexpected weakness in domestic consumption has slowed momentum.

Fixed assets fell 1.6% in January-July from the same period last year in line with expectations, but slower than a 3.1% decline in the first half.

July real estate investment grew at the fastest cut since April last year, supported by solid construction activity and easier lending. New house prices rose slightly more in July from a month earlier.

Infrastructure investments, which are a strong driver of growth, fell by 1.0% year-on-year, declining from a decline of 2.7% in the first half of the year.

“Once the floods are over, I believe that reconstruction work for the affected areas will increase investment in fixed assets and industrial production,” said Iris Pang, chief economist for Greater China at ING.

Another major risk is the increasingly tense relations between the United States and China ahead of the US presidential election in November, which analysts say has prompted Beijing to focus on domestic-driven growth.

“Changes in US-China relations have certainly had an impact on China as well as the United States,” Statistics Bureau spokesman Fu Linghui told a news conference.

“We still hope to maintain the equal and mutually beneficial development (in relationships).”

Additional reporting from Colin Qian; Editing Sam Holmes

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