China’s economy is showing signs of improvement, but real estate remains a weakness

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Economic activity in China appears to be improving in August, with data released on Friday indicating that the decline in growth may stabilize. But more bad real estate news has highlighted the challenges that still lie ahead.

Industrial production – which measures output from sectors such as manufacturing and mining – rose 4.5% in August from a year earlier, up from a 3.7% increase in July. according to National Bureau of Statistics (NBS).

Retail sales, which measure consumption, expanded by 4.6% YoY, compared to the tepid 2.5% increase recorded in July.

There was more evidence that the two-year-old real estate crisis is far from over.

Sino-Ocean, a major state-backed real estate developer, said so He will comment repaying its foreign loans, in a sign of how the ongoing real estate crisis could continue to impact the economic expansion.

Investing in fixed assets, including infrastructure and construction, grew by 3.2% In the first eight months of this year compared to the same period last year, Slightly weaker than the 3.4% recorded in the first seven months of 2023.

Real estate investment declined 8.8% in the first eight months of the year compared to the same period last year. according to Office of National Statistics. Real estate sales by floor area decreased by 7.1%.

Moody’s lowered its outlook for the overall real estate sector on Thursday, citing a decline in residential sales and continuing concerns about the health of the industry.

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Larry Hu, chief economist for Greater China at Macquarie Group, said that despite “widespread pessimism”, the worst may be over for the world’s second-largest economy, which is currently grappling with weak demand for exports from global markets and the worst real estate downturn on record. Launch.

“Going forward, headline growth numbers could improve on policy support and fundamental influences, but the pace will be modest,” he wrote in a research note on Friday, citing weakness in the real estate sector as well as declining confidence among business owners and consumers.

Still, Asian stock markets rose after the data release, with MSCI’s broad regional equity index up nearly 1% by midday. In Hong Kong, the Hang Seng Index rose 1.5%. Japan’s Topix index rose 0.8%.

“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, managing partner at SPI Asset Management, wrote in a research note on Friday.

“However, it is necessary to be cautious, as it is still early in the process, and one month of positive data is not enough to confirm a sustainable path to recovery,” he added.

China’s economy has been in recession since April, when the momentum from a strong start to the year faded. Since then, the government has taken a series of measures to revive growth.

The People’s Bank of China (PBOC) issued a statement on Thursday Sudden cut The amount of money that banks must hold in reserve, in order to support economic recovery and improve liquidity in the financial system.

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The required reserve ratio (RRR) will be reduced by 25 basis points for all banks from Friday, except for those that have already implemented a 5% reserve ratio. People’s Bank of China The last cut The reserve requirement ratio for all banks increased by 25 basis points in March.

The slowdown in China’s economy has raised concerns at home and abroad.

Chinese Foreign Ministry spokesman Mao Ning said on Tuesday hit back Responding to suggestions of economic weakness, he said growth was “strong and resilient.”

“All kinds of comments predicting the collapse of the Chinese economy continue to appear from time to time. But what collapsed is such rhetoric, not the Chinese economy,” she told reporters during a press conference. “The Chinese economy will remain a major driver of the global economy.”

The latest batch of economic data was mixed.

On Saturday, the CPI rose just 0.1% in August – which was below market expectations, even as it headed into positive territory. The producer price index fell by 3% year-on-year, falling for the eleventh month in a row, as prices in the industrial sector continued to be weak.

The tepid trend in consumer prices in China stands in stark contrast to the inflation seen in most other major economies, which has forced their central banks to increase interest rates.

Michelle Toh contributed to this report.

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