Real estate investment continues to decline, underscoring the weakness in the all-important real estate sector.
China’s factories and retail sales also accelerated in August, according to government data, suggesting the economy may be gradually recovering from the post-pandemic slump.
However, despite bustling restaurant and retail activity, figures released Friday showed continued weakness in the all-important real estate sector, where real estate developers are struggling to repay heavy debt at a time of weak demand.
Investments in real estate fell by 8.8 percent in August compared to the previous year. The decline has continued to worsen since the beginning of the year.
To ease the burden on banks, the People’s Bank of China, or central bank, announced late Thursday that reserve requirements for most lenders would be cut by 0.25 percentage points from Friday.
That would free up more money for lending, “to consolidate the foundation for economic recovery and maintain reasonable and sufficient liquidity,” the central bank said.
Friday’s report showed that retail sales rose 4.6 percent in August from a year earlier, while auto sales rose 5.1 percent. Retail sales rose by a paltry 2.5 percent in July.
Consumers have become more cautious about their spending over the past year, even as China relaxed strict policies to contain COVID-19 outbreaks.
“Overall, the key indicators improved marginally in August, the national economy recovered, high-quality development made strong progress, and positive factors accumulated,” Fu Linghui, spokesman for the National Bureau of Statistics, said , to reporters.
But Fu added that there were “still many external factors of instability and uncertainty” and that domestic demand remains weak, so “the foundation for economic recovery still needs to be consolidated.”
August trends were slightly better than expected, Julian Evans-Pritchard of Capital Economics said in a report.
“Budget support boosted investment, but the real bright spot was a healthy rebound in consumer spending, suggesting households may be becoming slightly less cautious,” he said.
China’s economy grew 0.8 percent in the three months ended June from the previous quarter, up from 2.2 percent in January-March. That equates to an annual rate of 3.2 percent, which would be among the weakest paces in decades.
About one in five young workers are unemployed, a record high, adding to pressure on consumer spending.
The housing market downturn, which has manifested itself in many other sectors besides construction and materials, has also weighed on China’s recovery from severe disruptions in recent years as the ruling Communist Party tried to stem waves of COVID-19 infections to eliminate.
Shares rose on Friday after the figures were released, with Hong Kong’s Hang Seng gaining 1.7 percent, while the Shanghai Composite index rose 0.3 percent.
“There is a growing sense of optimism among a group of investors who believe Beijing’s recent initiatives to stimulate the economy and stabilize financial markets are showing signs of success,” Stephen Innes of SPI Asset Management said in a commentary.