China saw a modest improvement in overall retail sales and industrial production in August, according to data released by China’s National Bureau of Statistics. The country’s economy has shown signs of recovery following the government’s efforts, including interest rate cuts. However, foreign economists remain cautious about the situation.
Real estate remains a persistent risk.
The real estate sector in China continues to pose a challenge to the country’s economic prospects. Property investment experienced a steep decline of nearly a fifth in August compared to the same month last year. Construction activities have slowed down, primarily due to falling apartment prices.
The decline in apartment prices is even more significant than reflected in the statistics for new apartments, as local governments have pressured developers to avoid price cuts. Existing home prices have fallen by 14%, and rents have decreased by 5%.
To offset the impact of the slump in apartment construction, the Chinese government has initiated large-scale infrastructure projects, such as subways, highways, and public parks.
Banks are being squeezed.
China’s banks are facing challenges with loans made to property developers and local governments involved in real estate. With defaults on debt payments and weak demand for new real estate loans, banks are reluctant to demand immediate repayment for construction projects that have halted. To support infrastructure projects by local and provincial governments, the central bank has allowed banks to set aside smaller reserves and extend more credit.
Investment in fixed assets was held back by property woes.
The decline in property investment has affected overall investment in fixed assets. While infrastructure spending and some manufacturing investment have offset the impact, the pace of investment growth has slowed down.
The production of semiconductors has increased due to government subsidies, as the United States restricts exports of high-speed computer chips and related equipment to China. With deflation in wholesale prices, China’s industrial production rose by 4.5% in August compared to the previous year. Retail sales also rebounded, increasing by 4.6% in August, driven by rising energy prices.
Changes in consumer behavior have been observed, with beer and wine production decreasing while bottled water and fruit and vegetable juice production have increased.
