China's Economy Shows Signs of Recovery as Stimulus Ramps Up
Comment of the Day

September 16 2022

Commentary by Eoin Treacy

China's Economy Shows Signs of Recovery as Stimulus Ramps Up

This article from Bloomberg may be of interest to subscribers. Here is a section:  

China’s economy showed signs of recovery in August as Beijing rolled out stimulus measures to counter a slowdown, although a property market slump and Covid outbreaks continue to weigh on the outlook.

Industrial production, retail sales and fixed-asset investment all grew faster than economists expected last month. The urban jobless rate slid to 5.3%, while the youth unemployment rate fell from a record high.

The boost to retail sales was partly due to a lower base of comparison from a year earlier and a surge in car sales after Beijing gave buyers subsidies on electric vehicles. Industrial output was also supported by a big spike in electricity production during August’s heatwave, a rebound that’s unlikely to be sustained. 

Despite signs of improvement, the recovery remains fragile as Covid outbreaks spread to more parts of the country and the government tightens curbs to contain infections in the run-up to the Communist Party’s twice-in-a-decade leadership congress next month. A property market slump also shows no sign of easing, with separate data on Friday showing home prices have now declined every month in the past year, with the contraction in August bigger than in July. 

“While today’s data are better than expected, it’s unlikely to change the prevailing pessimism toward China, given the multiple headwinds underway including zero-Covid, property rout and the lack of decisive policy moves before the Party Congress,” said Larry Hu, chief China economist at Macquarie Group Inc. 

Eoin Treacy's view

China’s administration knows better than anyone that a property crash would represent an existential crisis for social cohesion. At the same time, they don’t want to allow a bubble to expand any further and have been trying to stamp out speculation. The conflict arises in the fact you can’t have a bull market without people willing to take risks. Building in the hopes of selling at a profit is speculative by nature.

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