China's economic recovery gathers momentum

Economic recovery in China gathered momentum in August, with production and demand continuing to pick up while employment and consumer prices remained generally stable.

The industrial output of major enterprises grew by 5.6 percent year on year, 0.8 percentage points faster than in July, according to data from the National Bureau of Statistics. 

On a month-on-month basis, industrial output rose 1.02 percent from July.

"We've seen a number of positive changes in economic operation last month," said bureau spokesman Fu Linghui.

In August, China's economy overcame the adverse effects of COVID-19 and flooding to maintain a stable recovery with major indicators continuing to pick up, boosted by the country’s efforts to control the pandemic and promote economic and social development, Fu said.  

From January to August, the cumulative growth pace of industrial output as well as that of goods exports turned positive for the first time this year, Fu said.

"Industrial output and service production have improved so far in the third quarter compared with that in the second quarter," Fu said. "If such momentum could be sustained in September, economic growth will accelerate evidently in the third quarter."

Lu Ting, chief China economist of financial services company Nomura, said "the stronger-than-expected" activity data in August support its recent decision to raise growth forecasts for the third and fourth quarter to 5.2 percent year on year and 5.7 percent, respectively.

"Strong external demand, a further recovery from the pandemic and pent-up demand from the floods all contributed to the robust activity data in August. We expect a further, albeit gradual, recovery of the services sector, a steady improvement in retail sales and elevated FAI growth,” Lu said. 

As for fiscal policy, Lu expected China to carry out what it planned in the first half of the year on scheduled budget and government bond issuance, while on monetary and credit policies he believed the period of quickly accelerating credit growth is over, but will likely remain at current levels of around 13 percent through the second half.

The Australia and New Zealand Banking Group also revised its forecast for China’s GDP growth upward to 2.1 percent for 2020 "on the back of a robust recovery in the services industry, thanks to news that China will have COVID-19 vaccines ready by year-end," according to Raymond Yeung, its chief China economist.

In terms of policies, Yeung said "China’s swift actions have proven to be effective in stabilizing the overall economic sentiment, although the unemployment issue remains concerning," and believed the monetary policy could become "comparatively more innovative and flexible" in future.

Industrial enterprises tracked posted output up 0.4 percent in January-August from the same period last year, reversing the 0.4 percent decline in the first seven months.

The mining industry rose 1.6 percent year on year in output last month, while manufacturing jumped 6 percent, and the electricity, heat, gas, water production and supply sectors advanced by 5.8 percent.

Output of the equipment manufacturing sector and the high-tech manufacturing industry grew by 10.8 percent and 7.6 percent, respectively, 5.2 percentage points and 2 percentage points faster than overall industrial output growth, indicating continuous optimization of the industrial structure, the bureau said.

Output growth of major raw materials broadly improved in August. Specifically, cement output growth improved to 6.6 percent year on year in August from 3.6 percent in July, partly driven by pent-up demand as firms may have accelerated construction to catch up on the progress postponed by flooding along the Yangtze River. 

Growth of power generation, meanwhile, rose to 6.8 percent year on year in August from 1.9 percent in July, in line with electricity consumption growth data released on Monday, which jumped to 7.7 percent in August from 2.3 percent in July.

Regarding industrial products, output growth of integrated circuits and industrial robots rebounded to 12.1 percent and 32.5 percent, respectively, in August from 9 percent and 19.4 percent in July. 

However, smartphone output in volume terms rose 12.1 percent year on year in August, slower than the 19.2 percent jump in July, while output growth of automobiles slumped to 7.6 percent in August from 26.8 percent in July.

Fu also highlighted a robust recovery in China’s services sector. In August, it expanded 4 percent in August from a year earlier, compared with the 3.5 percent rise in the previous month, while for the January-August period it fell 3.6 percent year on year, narrowing from the decline of 4.7 percent in the first seven months, according to the bureau.

Among them, information transmission, software and information technology services grew by 13.8 percent, 0.1 percentage points faster than July. The real estate industry and the transport, warehousing, and postal services sector rose 9.4 percent and 3.3 percent, respectively, 1.6 percentage points and 1.2 percentage points faster than the figures in July.

Retail sales growth recorded the first positive print since this year, which in nominal terms rose 0.5 percent year on year in August compared with the 1.1 percent drop in July, slightly stronger than market expectations. 

By major products, auto sales growth remained elevated at 11.8 percent last month, despite a moderation from 12.3 percent in July, slightly contradicting the data reported by the China Passenger Car Association, which indicated retail sales growth of passenger cars by volume rose to 9.0 percent year on year in August from 7.9 percent in the previous month.

Fixed-assets investment growth, meanwhile, picked up to 7.6 percent year on year in August from 6.1 percent in July.

August’s rise in year-on-year FAI growth was led mainly by manufacturing investment, the growth of which jumped to 5.0 percent year on year in August compared with the 3.1 percent fall in July, Nomura noted.

By type of ownership, growth of FAI by privately owned enterprises surged to 15.1 percent year on year in August from 2.2 percent in July, while FAI by state-owned enterprises fell 0.4 percent, cooling sharply compared with the 12.7 percent rise over the same period.