By Kevin Yao, Ellen Zhang and Ethan Wang

Economic Slowdown in China

BEIJING (Reuters) – China’s industrial output growth slowed to a five-month low in August, while retail sales and new home prices weakened further, bolstering the case for aggressive stimulus to shore up the economy and help it hit its annual growth target.

The sluggish data released on Saturday echoed soft bank lending figures on Friday, underscoring weak growth momentum of the $18.6 trillion economy, the world’s second-largest, in the third quarter.

Industrial Output and Retail Sales

Industrial output in August expanded 4.5% year-on-year, slowing from the 5.1% pace in July and marking the slowest growth since March, data from the National Bureau of Statistics (NBS) showed on Saturday. This missed expectations for 4.8% growth in a Reuters poll of 37 analysts.

Retail sales, a key gauge of consumption, rose only 2.1% in August despite the summer travel peak, decelerating from a 2.7% increase in July. Analysts had expected retail sales, which have been anaemic this year, to grow 2.5%.

“The momentum is slowing down…The bottleneck remains domestic demand,” said Xing Zhaopeng, ANZ’s senior China strategist.

Investment and Property Sector

China’s oil refinery output fell for a fifth month, while crude steel output in August fell 6.1% from July, suggesting disappointing demand. Faltering Chinese economic activity has already prompted global brokerages to scale back their 2024 China growth forecasts to below the government’s official target of around 5%. The economy grew by 4.7% in the second quarter.

“The Q3 GDP is likely to be lower than Q2 based on current data flows. We expect large-scale stimulus to come soon,” said Xing.

President Xi Jinping urged authorities on Thursday to strive to achieve the country’s annual economic and social development goals, state media reported, amid expectations that more steps are needed to bolster a flagging economic recovery.

As we approach the end of the third quarter, there is pressure for policymakers to introduce measures to boost the economy amidst numerous challenges.

The ongoing property slump has led to consumers reducing spending, with some experts proposing the distribution of shopping vouchers to stimulate consumption. Premier Li Qiang noted last month that the country will focus on stimulating consumption and look at measures to boost household income.

Economic Indicators

A central bank official indicated that China still has room to lower the amount of cash banks must hold as reserves, though cutting interest rates presents some constraints.

Fixed asset investment rose 3.4% in the first eight months of 2024 compared to the same period a year earlier, slightly below the expected 3.5% expansion.

Liu Aihua, spokesperson of NBS, said at a press conference on Saturday that China’s economic operations remained stable, although high temperatures and natural disasters impacted growth last month.

Cash-strapped local governments issued bonds at a quicker pace in August for major projects, suggesting that quickening bond issuance and policy initiatives will support investment growth. However, the troubled property sector remains a significant drag on growth, with new home prices falling at the fastest pace in over nine years in August.

Employment and Exports

China’s nationwide survey-based jobless rate climbed to 5.3% in August from 5.2% in the previous month, according to the NBS, reflecting an influx of college graduates into the job market.

Exports have been a recent bright spot for China, although analysts are uncertain how long this trend will last due to increasing trade tensions with certain countries and regions.

Zhiwei Zhang, chief economist at Pinpoint Asset Management, suggested that investors are beginning to question future growth prospects, especially for 2025.

“Will the tight fiscal policy stance continue into next year, when global growth will likely slow down and put pressure on China’s exports?” Zhang pondered.