China’s retail sales grew 2.5% in August, far slower than 7% expected

BEIJING — China’s retail sales grew a disappointing 2.5% in August from a year ago as the country dealt with the worst outbreak of Covid-19 since its initial spread in early 2020.

Data on consumer spending released by the National Bureau of Statistics on Wednesday came in well below the 7% growth forecast by analysts polled by Reuters.

Industrial production growth was also slightly below expectations, up 5.3% in August versus predictions of 5.8% growth.

Fixed asset investment for the first eight months of the year rose 8.9% from a year ago, the data showed.

Mainland China controlled a late July outbreak of the highly contagious delta variant by mid-August. Under Beijing’s “zero tolerance” policy, authorities had imposed travel restrictions and local lockdowns within the country during a major part of the summer holidays.

“It’s hard for retail sales to return to the pre-COVID growth under the zero-tolerance strategy,” Larry Hu, chief Chinese economist at Macquarie, said in a note Wednesday. “How long the government would stick to the strategy depends on the vaccination ratio and vaccine efficacy. At this stage, it seems that policymakers will stick to the zero-tolerance strategy at least before the Olympics [this coming] Feb.”

Figures for last month also compare to a higher base than the first half of the year as China had already mostly emerged from the height of the coronavirus pandemic last summer.

National Bureau of Statistics spokesperson Fu Linghui pointed out at a press conference Wednesday that after declining in the wake of the pandemic, retail sales returned to growth in August 2020.

He added in response to a separate question that “some large-scale real estate companies have encountered some difficulties in the process of production and operations, and the impact to the entire industry needs to be observed.” That’s according to a CNBC translation of his Mandarin-language remarks.

Chinese authorities have sought to limit speculation in the real estate market. The industry, along with related industries such as construction, accounts for more than a quarter of national GDP, Moody’s estimates.

More stringent regulation on how property developers can use debt to expand their businesses has particularly hit highly indebted real estate giant China Evergrande. The company warned two times in a month it could default on its debt.

Investment in real estate development from January to August grew by 10.9% from a year ago, a slowdown of 0.3 percentage points from the growth rate of the first seven months of the year, the statistics bureau said Wednesday.

The latest economic data also show that real estate-related consumption remains weak, said Bruce Pang, head of macro and strategy research at China Renaissance. He pointed to low sales in August for furniture and construction and decoration products, and home appliances, which saw sales decline by 5% last month from a year ago.

Pang said that, given a decline in auto sales and the impact of Covid, the overall slowdown in retail sales growth last month does not change his firm’s generally cautious view on the Chinese consumer market in the second half of this year.

The unemployment rate in cities remained unchanged from July at 5.1% in August, while that for workers aged 16 to 24 fell slightly to 15.3%.

— CNBC’s Yen Nee Lee contributed to this report.