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Chinese economic activity data signals optimism after stimulus measures

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Chinese economic activity data signals optimism after stimulus measures

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China’s retail sales and industrial production grew faster than expected in August, official data showed on Friday, in a rare boost after policymakers stepped up stimulus measures to support the world’s second-biggest economy.

The data release also highlighted challenges in the property sector, where new home prices in big cities edged lower after a period of heightened investor concern over spillover effects from developer defaults.

Industrial production rose 4.5 per cent year on year in August, while retail sales, a gauge of spending that had remained consistently weak, added 4.6 per cent. Both measures exceeded analyst forecasts, as well as growth rates in July of 3.7 and 2.5 per cent, respectively.

China’s economy has struggled to rebound after three years of strict anti-pandemic measures were lifted at the start of the year, as a property sector slowdown, collapsing trade and low consumer demand hit confidence.

Other aspects of Friday’s data release underscored the challenge for Beijing to reach its 5 per cent annual growth target, the lowest mark in decades.

Fixed-asset investment softened to a 3.2 per cent rise in the first eight months of the year, compared with a 3.4 per cent rise to the end of July, while new home prices in 70 major cities fell 0.3 per cent month on month. Property investment is down 8.8 per cent over the January-August period.

China’s benchmark CSI 300 index of Shanghai- and Shenzhen-listed stocks briefly rallied following the data release before falling back to be down almost 0.9 per cent in afternoon trading.

Policymakers have unveiled a series of stimulus measures in recent weeks to boost growth and prop up the property market and currency. The People’s Bank of China on Thursday cut the reserve requirement ratio for banks by 0.25 percentage points to 7.4 per cent, in effect adding liquidity into the financial system.

Zhiwei Zhang, chief economist at Pinpoint Asset Management, said the ratio cut sent a signal “that there is a sense of urgency to boost growth”, adding that he expected further policy moves in coming months.

The central bank said on Friday it was keeping interest rates on its one-year medium-term lending facility unchanged at 2.5 per cent. Last month, the PBoC issued an unexpected cut to the rate, which affects loans to financial institutions, by 0.15 percentage points as part of wider easing measures.

Big cities in recent weeks have also begun removing price restrictions on home purchases, including reducing minimum mortgage interest rates and downpayments, in a sign of mounting pressure to address a two-year property cash crunch that has weighed on construction activity and local government finances.

Recent trouble at Country Garden, formerly China’s biggest private developer by sales, which came close to defaulting this summer, has raised concerns about contagion from the property market into the wider economy and financial system.

On Friday, Sino-Ocean, another Chinese developer, suspended repayments on all of its offshore borrowings “in response to mounting liquidity pressures” including “a rapid decline in contracted sales”.

The positive industrial production and retail sales figures added to signs of tentative improvement in recent data releases.

Consumer prices in China turned negative in July before edging back into positive territory in August, while exports and imports declined less sharply than in July last month by 8.8 and 7.3 per cent, respectively.

The government also announced last month it would cease publication of youth unemployment data after it hit record levels.

Additional reporting by Hudson Lockett in Hong Kong

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