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China’s retail sales are falling unexpectedly as consumer caution reigns



China’s retail sales slipped in July, weakening expectations of a modest increase as consumers in the world’s second-largest economy failed to shake up the coronavirus while the recovery in the manufacturing sector struggled to gain momentum.

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

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7;s recovery was picking up pace after the pandemic paralyzed huge shards in the economy as tense demand, government stimulus and surprisingly elastic exports propel a rebound.

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

“Looking ahead, we expect a renewed acceleration in infrastructure investment in the coming months, as the planned issuance of government bonds continues to increase,” said Martin Rasmussen, Chinese economist at Capital Economics.

“This should create a further rebound in industry and construction, and help absorb the sluggish labor market, indirectly increase consumption and keep the economic recovery on track.”

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

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

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.

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On the other hand, investment was driven by the rapid expansion in the real estate sector, with analysts expecting infrastructure spending to accelerate in the coming months on the back of government support.

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

“After the floods are over, I think construction in the affected areas will increase investment in fixed assets and industrial production,” said Iris Pang, chief economist for Greater China at ING.

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(Additional reporting from Colin Qian; Edited by Sam Holmes)


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