Wednesday, 20 October, 2021

China’s factories, retailers stumble on corona disruptions

BEIJING: China’s factory and retail sectors faltered in August with output and sales growth hitting one-year lows as fresh coronavirus outbreaks and supply disruptions threatened the country’s impressive economic recovery.

Industrial production rose 5.3per cent in August from a year earlier, narrowing from an increase of 6.4per cent in July and marking the weakest pace since July 2020, data from the National Bureau of Statistics showed on Wednesday. Output growth missed the 5.8per cent increase tipped by analysts, report agencies.

Consumer spending also took a big hit from rising local COVID-19 cases and floods with sales rising only 2.5per cent in August from a year ago, much lower than the forecast 7.0per cent rise and the slowest clip since August last year.

“Economic growth slowed in August as consumption was hit by the lingering impact of earlier COVID outbreaks and investment remained weak,” said Louis Kuijs, Head of Asia Economics at Oxford Economics. “Meanwhile, a new outbreak which started a few days ago in Fujian is posing downside risk to our forecast of a pick-up in growth in Q4 after a weak Q3.”

The world’s second-largest economy has made a remarkably strong revival from last year’s coronavirus-led slump, but momentum has slowed over the past few months due to supply chain bottlenecks, semiconductor shortages, curbs on high-polluting industries and a crackdown on property investment.

Looking ahead, analysts at Nomura expect the weakness to broadly extend into September given the new wave of Delta cases in Fujian province and worsening conditions in the property market as authorities get tough on the sector.

In the industrial sector, production curbs hit output of aluminium and steel, while a drastic cut in fuel export quotas hurt China’s crude oil throughput.

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

China’s services activity slumped into contraction 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 its adjusted operating profit would take a 50per cent to 60per cent hit in the third quarter as the spread of the Delta variant in China closed restaurant and “sharply reduced sales”.

“As growth is approaching the lower end of the officially-estimated potential growth range of 5.0-5.7per cent, Beijing may step up targeted easing to generate a moderate pick-up in growth in our view,” said Jingyang Chen, Greater China economist at HSBC.

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