Chinese economy shows slight signs of slowdown in August

Economic figures suggest that economic growth slowed a bit in August. China’s National Bureau of Statistics (NBS) reports that real growth in retail sales slowed last month to around 3 % y-o-y, declining from about 5 % in July. The government’s subsidy programmes introduced late last summer to encourage to replace their home appliances with new ones are gradually losing steam. Moreover, the programme launched last month to subsidise interest on consumer credit has yet to show signs of stimulating consumer credit demand. In fact, the stock of consumer loans shrank slightly in August. While consumer confidence in China remains low, the latest NBS survey in July showed consumer confidence ticked up a bit.

The NBS figures reveal that real growth in industrial output slowed in August to 5.2 % y-o-y (5.7 % in July). The slowdown was fairly broad-based across industrial branches. Output growth only accelerated in the chemicals industry and production of non-ferrous metals. In any case, large differences in the pace of growth persisted. Production fell in January-August is such categories as furniture (down 5 % y-o-y ), clothing (-2 %) and fabrication of leather goods and footwear (-1 %), while manufacturing of automobiles remained strong (up 11 %), along with categories such as vehicles other that autos (+16 %), electrical equipment (+12 %) and computers (+11 %).

The sluggishness in industrial output growth may reflect weakening export demand as the inventory-building surge from US tariff policies has now passed. Even so, the dollar-value of China’s goods exports in August was up by over 4 % y-o-y (the dollar value of exports did not increase from July, however). The price competitiveness of Chinese export products remains strong as the yuan’s exchange rate is weak against many major currencies such as the euro and domestic prices are in deflation. The weak growth in goods imports also continued, coming in at just 1 % y-o-y in August.

The collapse in real estate construction continues. The NBS numbers suggest that the value of real estate investment in August fell by 20 % y-o-y. The volume of new building starts, measured in terms of floorspace, also contracted by 20 % y-o-y, while apartment sales fell by 10 %. The decline of real estate construction continues to weigh heavily on fixed capital investment generally. The NBS reports that in the first eight months of this year, total fixed investment only grew by 0.5 % y-o-y in nominal terms. Fixed investment not including real estate construction, however, grew by 4.2 %. Branches showing high investment growth include the car industry (up 20 % y-o-y in January-August), as well as manufacture of vehicles other than automobiles (+26 %). Domestic entities must account for an increasing share of investment growth as fixed investment by foreign firms operating in China continues to decrease. For the January-August period, the fixed investment of foreign firms fell by 15 % y-o-y in nominal terms. Real growth figures on fixed investment, which the NBS is providing occasionally, imply that prices for fixed investments declined by 2.5 % y-o-y in the first half of this year. If price trends remained similar in July and August, real growth in fixed investment in January-August was roughly 3 % y-o-y.

Growth in industrial output and retail sales slowed in August.

Sources: China National Bureau of Statistics, CEIC and BOFIT.