China's domestic spending still sluggish despite hopes for it to drive growth

BEIJING • China's retail sales dropped last month, official data showed yesterday, indicating that sluggish consumer spending could hold up the country's recovery from the coronavirus outbreak.

Retail sales - a key indication of consumer sentiment - shrank by 1.1 per cent year on year, falling short of forecasts and suggesting many are still reticent about going out to spend money, even as China appears to have the virus largely under control.

The latest data follows a drop of 1.8 per cent year on year for retail sales in June. Bloomberg analysts had projected sales would recover to a modest 0.1 per cent growth.

While the sale of goods just crept into positive territory, growing 0.2 per cent, the catering industry was particularly badly hit, with sales down 11 per cent.

The retail sector has an increasingly important role in China's economy as leaders look to consumers, rather than trade and investment, to drive growth.

A domestic consumption pickup is crucial as external demand weakens, with other countries battling the pandemic.

National Bureau of Statistics (NBS) spokesman Fu Linghui said the data showed "a trend of steady recovery".

Industrial production grew by 4.8 per cent last month - the same as the previous month, but below predictions from Bloomberg analysts of 5.2 per cent growth.

Meanwhile, fixed asset investment for the year so far was down 1.6 per cent year on year, an improvement on last month's data, but still weak.

"Not the best of economic numbers out of China today with both retail sales and industrial production underwhelming," said Mr Stephen Innes, chief global markets strategist at AxiCorp.

"The glaring concerns around retail demand continue to speak volumes that it's going to take more than stimulus and deep discounts on luxury products to get people shopping again."

China is working to bounce back from a historic economic contraction in the first quarter caused by the virus, which had shut down most activity and forced people across the country to stay home.

The coronavirus - which first emerged in Wuhan late last year - has since shut businesses and destroyed millions of jobs globally.

Unemployment last month was stable at 5.7 per cent, the NBS said, level with the previous month. Analysts have warned the real level of unemployment is likely higher.

As several of the world's major economies plunge into recession, China's data suggests it is generally recovering quicker, as the first to be hit by Covid-19 and one of the first to recover.

China's gross domestic product expanded 3.2 per cent in the April-June period, smashing expectations and a massive improvement on the 6.8 per cent contraction in the first quarter.

AGENCE FRANCE-PRESSE

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A version of this article appeared in the print edition of The Straits Times on August 15, 2020, with the headline China's domestic spending still sluggish despite hopes for it to drive growth. Subscribe