Sep 15, 2021 04:17 PM

China’s Economy Weakens on Delta Outbreak and Wary Consumers

Shoppers in an upscale retail area in Beijing on Aug. 25. Photo: Bloomberg
Shoppers in an upscale retail area in Beijing on Aug. 25. Photo: Bloomberg

(Bloomberg) — China’s economy weakened further in August after stringent virus controls curbed consumer spending and travel during the peak summer holiday break, worsening the growth outlook at a time when property curbs are also starting to bite.

Retail sales growth slowed sharply to 2.5% from a year ago, the National Bureau of Statistics said Wednesday, lower than the 7% estimate in a Bloomberg survey of economists. Industrial output rose 5.3%, versus the median estimate of 5.8%. Fixed-asset investment in the first eight months of the year was largely in line with projections, rising 8.9%. The unemployment rate was unchanged at 5.1%.

Even before the delta variant outbreak from late July, consumers had been cautious to spend, failing to make a comeback to pre-pandemic levels. More recently, regulatory crackdowns in property and education services have weighed on consumer sentiment.

“Markets so far have significantly underestimated the scale of growth slowdown in the second half,” said Lu Ting, chief China economist at Nomura Holdings Inc in Hong Kong. Authorities will stick to their approach of “short-term pains in order to seek long-term gains,” and will likely maintain property curbs and restricting output of some industrial goods to meet anti-pollution goals, he said.

China’s 10-year government bond futures climbed for the first time in three days. The CSI 300 Index pared its loss slightly after the data dump, down 0.6% as of 11:12 a.m. in Shanghai.

With economic risks building, policy makers are ramping up support for smaller businesses, and pledging better use of local government bonds. Many economists expect the People’s Bank of China to cut the reserve requirement ratio for banks again in coming months following a surprise reduction in July.

The PBOC maintained its measured policy approach Wednesday by rolling over its medium-term loans coming due rather than injecting more liquidity.

The virus control measures caused a slump in retail sales and spending on services last month as many people stopped going out to restaurants and shops and canceled holidays. The services sector contracted in August for the first time since early 2020, recent purchasing managers’ surveys showed.

The breakdown of retail sales data shows the impact of the virus controls: restaurant & catering contracted 4.5% in August from a year ago after climbing 14.3% in the previous month, while clothing sales were down 6%.

While China quickly brought the late-July outbreak under control, a new virus cluster has developed in southern China this month, suggesting consumers will remain cautious for longer.

While consumption should see some snapback in September, the “economy would stay under a broad downtrend in the next couple of quarters,” said Larry Hu, head of China economics at Macquarie Securities Ltd. in Hong Kong. “Policy should ease on the margin through faster government bond issuance and more loan quota, but it’s still too early for them to loosen the controls on property and local government debt.”

The NBS said in a statement that even though the economy continued to recover in August, “the international environment is complex and grim, and the impact from domestic virus outbreaks and natural disasters such as floods on the economy is showing.” The economic recovery “still needs to be solidified,” it said.

Construction investment took a knock as the government steadily tightened property curbs to rein in financial risks, contracting 3.2% in the eight months of the year from the same period in 2020. Growth in property investment slowed to 10.9%, while property sales also weakened.

Manufacturers have had to deal with rising costs, disruptions caused by recent floods in some parts of the country, and the continued shortage of computer chips, which has been especially damaging for the car industry.

At the same time, global demand has remained strong, despite port congestion problems and high shipping costs. China posted record monthly export figures in August as U.S. and European buyers increased their orders before the Christmas shopping season.

“The recovery could see further slowdown amid fresh Covid outbreaks,” said Bruce Pang, head of macro and strategy research at China Renaissance Securities Hong Kong. “A cross-cyclical combination of targeted tightening and easing is needed.”

Contact editor Michael Bellart (

Download our app to receive breaking news alerts and read the news on the go.

Get our weekly free Must-Read newsletter.

You've accessed an article available only to subscribers
Share this article
Open WeChat and scan the QR code