Chinese factories and retailers stumble over COVID-19 disruptions, Retail News, ET Retail

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BEIJING: China’s factory and retail sectors weakened in August, with production and sales growth hitting year-over-year lows, as new coronavirus outbreaks and supply disruptions threatened the impressive economic recovery of the country.

Industrial production rose 5.3% in August from a year earlier, narrowing from a 6.4% increase in July and marking the weakest pace since July 2020, data showed on Wednesday. of the National Bureau of Statistics. Production growth missed the 5.8% increase announced by analysts.

Consumer spending has also been hit hard by the increase in local COVID-19 cases and flooding, with sales only increasing 2.5% in August from a year ago, well below of the expected 7.0% increase and the slowest clip since August of last year.

“Economic growth slowed in August as consumption was hit by the lingering impact of previous COVID outbreaks and investment remained low,” said Louis Kuijs, head of the Asian economy at Oxford Economics. “In the meantime, a new outbreak that started a few days ago in Fujian poses a downside risk to our forecast of a resumption of fourth quarter growth after a weak third quarter.”

The world’s second-largest economy has experienced a remarkably strong recovery from last year’s coronavirus crisis, but momentum has slowed in recent months due to supply chain bottlenecks, semiconductor shortages, restrictions on highly polluting industries and crackdown on real estate investments. .

Looking ahead, Nomura analysts expect the weakness to extend well into September given the new wave of Delta cases in Fujian province and deteriorating real estate market conditions as authorities harden the sector.

In the industrial sector, production restrictions affected aluminum and steel production, while a drastic reduction in fuel export quotas hampered China’s crude oil flow.

Social restrictions due to the COVID-19 Delta variant in several provinces have hit the food service, transportation, accommodation and entertainment industries.

China’s services activity collapsed in August, a private sector survey showed, as restrictions to curb COVID-19 once again closed shopping malls and many businesses in parts of the country .

KFC operator Yum China Holdings Inc said on Tuesday that its adjusted operating profit would be impacted by 50% to 60% in the third quarter, with the spread of the Delta variant in China closing a restaurant and “sharply reducing sales”.

“As growth nears the lower end of the officially estimated 5.0-5.7% potential growth range, Beijing may step up targeted easing to generate a moderate recovery in growth in our view,” he said. said Jingyang Chen, Greater China Economist at HSBC.

“We expect the government to further accelerate the issuance of special bonds and the central bank to roll out more targeted easing measures, including targeted RRR cuts, to support SMEs.”

Analysts also expect China to step up spending on infrastructure projects later this year.

PROPERTY FOCUS

The weak data comes as growing problems in China’s real estate sector could have a broader impact on the economy as a whole.

Particular emphasis is placed on Evergrande Group, one of China’s leading real estate developers, which struggles to pay lenders and suppliers as its home sales plunge.

Separate data released on Wednesday showed China’s real estate investment rose 0.3% in August, the slowest pace in 18 months, while new home price growth hit its lowest level in August. eight months.

Chinese authorities have stepped up efforts to curb a scorching real estate market, which rebounded sharply from last year’s COVID-19 shock.

For now, analysts expect policymakers to prioritize stability and maintain their real estate restrictions and restrictions on carbon emissions, even if it means a deeper blow to the economy.

“We believe Beijing is prepared to endure short-term pain in order to seek long-term gains,” Nomura said.


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