Signs of life in China's economy

The three most important leading indicators of Chinese economic growth, industrial production, retail sales and fixed capital investment, exceeded economists’ expectations in August. Industrial production increased by 4.2 percent annually in August, above expectations of 3.8 percent. However, the role of increased electricity generation to meet increased consumption due to extreme heat in industrial production growth pointed to a seasonal acceleration. Retail sales growth was also 5.4 percent, well above expectations of 3.3 percent. The rapid increase in automobile sales along with the incentives announced by the Beijing government for electric vehicles played a role in retail sales. Fixed capital investment, which excludes the agricultural sector, grew by 5.8 percent, exceeding expectations of 5.5 percent. While the real estate crisis and harsh COVID measures are dragging down economic growth in China, the Beijing government is responding to this with large-scale incentives and loose monetary policy. While the Chinese government is targeting growth above 5 percent, many institutions’ growth estimates for China range between 3 percent and 4 percent. According to Helen Qiao, Chief Economist for China at BofA Global Research, preliminary data released today indicates that annual economic growth will reach 3.5 percent. “In our opinion, only measures that relax Covid controls can ease the economy,” Qiao said.