China released economic data for August that reflects recovery from July and growth, although elements of that growth are likely to come into question this month with COVID lockdowns.
Retail sales continued to grow at a faster pace in August, rising 5.4% year-over-year from July’s 2.7% rise and comfortably beating analysts’ expectations for 3.5%. Capital investment rose 3% month-over-month and 5.8% for the first eight months of the year. Industrial production also rose, beating expectations of 3.8% to 4.2% in August.
Image source: KraneShares China Last Night blog
One area of note is the recovery taking place in China’s beleaguered real estate sector. Property sales rose 6% month-on-month between July and August, paring losses as the government continues to support the sector and promote developer completion of projects.
“Zhengzhou City, Henan Province has ordered developers to restart all projects by October 6.e. This comes on the heels of central government leaders recently emphasizing affordable housing construction,” explained Brendan Ahern, CIO of KraneShares, on the China Last Night blog.
One of the biggest areas of growth in August economic data was auto sales in China, which rose 15.9% year-on-year, buoyed by tax incentives that were recently entered into force. However, sales of electric vehicles are even more impressive, an industry already popular in China, which is up 104% year-on-year and is expected to continue at least in the short term, as tax credits for electric vehicles have been extended.
Challenges for China
COVID lockdowns remain a major concern and risk for the country, with September data likely to be impacted by new waves of lockdowns spreading across 30 regions this month.
“The recent lockdown in Chengdu and travel restrictions for some areas expected to last through October could weigh on retail sales in September,” Ahern explained.
Another area to watch is currency. The strength of the US dollar took its toll on many foreign currencies and the renminbi was the latest hit, breaking through the key threshold of CNY 7 to the US dollar.
“The People’s Bank of China (PBOC), China’s central bank, will likely attempt to stabilize the currency, keeping its value at the upper end of a flexible range. The PBOC is still focusing on stimulus and helping the domestic market. The depreciation of the country’s currency reflects slowing foreign demand for exports,” Ahern said.
Chinese National Bureau of Statistics spokesman Fu Lingui cited insufficient domestic demand as a lingering problem for China and that the country hopes to sustain growth through investment in manufacturing and infrastructure in a recent speech to reporters.
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