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China Consumer Spending Speeds Up, but Tough Recovery Road Still Ahead

Economic IndicatorsNov 16, 2020 12:02AM ET
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By Gina Lee – China continued its path towards economic recovery in October, with a faster-than-expected rise in industrial production and investment alongside a steadier uptick in consumer spending.

Data from China’s National Statistics Bureau (NSB) showed that industrial production rose 6.9% year-on-year in October, above the 6.5% growth in forecasts prepared by but unchanged from September’s reading.

Meanwhiles retail sales grew 4.3% year-on-year in October, down from the forecast 4.9% but up from September’s growth of 3.3%. The unemployment rate fell to 5.3% from September’s 5.4%.

The data indicated a continuous recovery from the COVID-19-inspired lockdowns earlier in the year, helped along by resilient exports. With the virus largely under control in the country, consumer spending is slowly starting to increase.

China’s fourth-quarter economic growth will continue to accelerate from the third quarter, Fu Linghui, spokesman of the National Statistics Bureau, predicted at a briefing after the data was released. He aded that consumption prospects are improving, with the services industry showing good recovery momentum.

Although the recovery in consumer spending was slower than in industrial production, it is catching up after receiving a boost from October’s golden week holiday and the various Singles’ Day event that took place during the previous week. However, data revealed that retails sales are still down 5.9% compared to the same period in 2019.

Macquarie Bank Ltd head of China economics Larry Hu expects growth to pick up to 5.5% in the fourth quarter from 4.9% in the previous three months.

“The strong part of the economy (industry, investment and exports) remains strong but is also around the peak,” he said. “The weak part (consumption and capital expenditure) is catching up,” Hu told Bloomberg.

Stimulus policies from the government, including the People’s Bank of China (PBOC) injecting more liquidity into the financial system earlier in the day, are also helping to maintain the economic recovery.

Although PBOC officials recently raised the possibility of withdrawing stimulus, they also added that any withdrawal should not be rushed.

“China continues to move closer to its potential growth … as the growth outlook remains positive, the authorities will prioritize reforms over stimulus,” Australia and New Zealand Banking Group chief economist for Greater China Raymond Yeung told Bloomberg.

Surging COVID-19 cases globally, particularly in Europe and the U.S., alongside rising U.S.-China tensions, are clouding exports’ outlook.

Meanwhile, former Chinese finance minister Lou Jiwei said during the previous week that trade frictions between the United States and China may not ease in the near-term, even under a Joe Biden presidency.

Elsewhere in Asia, Japan also recorded a third quarter GDP growth of 21.4% year-on-year, and 5% quarter-on-quarter.

China Consumer Spending Speeds Up, but Tough Recovery Road Still Ahead

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