China’s industrial production and retail sales growth accelerated more than expected in August as the stimulus measures are beginning to underpin the nascent recovery, but the downturn in the property market continued dimming the growth prospects.
Industrial production posted a faster annual increase of 4.5 percent, the National Bureau of Statistics reported. Output growth was expected to improve to 3.9 percent in August from 3.7 percent in July.
Likewise, growth in retail sales strengthened to 4.6 percent from 2.5 percent in the previous month. This rate was also better than economists’ forecast of 3.0 percent.
During the January to August period, fixed asset investment increased 3.2 percent from the same period last year. However, the rate was a tad below the 3.3 percent expansion economists had forecast.
In the same eight months ended August, property investment plunged 8.8 percent, which was even bigger than the 8.5 percent decrease in the January to July period.
Amidst the property market slump and fading economic growth following the initial pick up from the reopening early this year, both government and central bank have rolled out a slew of measures.
The People’s Bank of China maintained the one-year medium-term lending facility rate at 2.50 percent on Friday. The bank added CNY 591 billion liquidity into the market via MLF.
The bank also conducted CNY 139 billion of reverse repo operations. The 7-day reverse repo rate was kept unchanged at 1.8 percent, while the 14-day reverse repo rate was lowered by 20 basis points.
This followed a surprise quarter-point reduction in the reserve requirement ratio on September 14. The move was estimated to release about CNY 500 billion into the system and reduce funding costs.
Economists at Capital Economics expect some additional monetary easing for the rest of the year. Also, the firm sees further support for the housing market and measures to keep the fiscal stance supportive.
With property price falls accelerating again, negative wealth effects could yet derail the rebound seen in August data, the research firm observed.
But assuming that policy support continues to be stepped up and is not prematurely withdrawn, a moderate cyclical recovery in growth may now be underway, economists added.
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