China’s factory output improves, offering hope of easing economic slowdown

China’s factories picked up their pace and retail sales also gained momentum in August, according to government data, suggesting the economy may be gradually recovering from its post-pandemic malaise.

However, despite busy activity in restaurants and stores, the figures released on Friday showed continuing weakness in the all-important property sector, where real estate developers are struggling to repay heavy loads of debt in a time of slack demand.

Investment in real estate fell 8.8 percent in August from the year before. The decline has been worsening since the beginning of the year.

Acting to relieve the burden on banks, the People’s Bank of China, or central bank, announced late on Thursday that the reserve requirement for most lenders would be cut by 0.25 percentage points as of Friday

That would free up more money for lending, “in order to consolidate the foundation for economic recovery and maintain reasonable and sufficient liquidity,” the central bank said.

Friday’s report showed retail sales rose 4.6 percent in August from a year earlier, with auto sales climbing 5.1 percent. Retail sales rose a meagre 2.5 percent in July.

Consumers grew more cautious about spending in the past year, even as China loosened stringent policies to contain outbreaks of COVID-19.

“Overall, in August, major indicators improved marginally, the national economy recovered, high-quality development was solidly advanced, and positive factors accumulated,” Fu Linghui, spokesperson for the National Bureau of Statistics, told reporters.

But Fu added that there were “still many external factors of instability and uncertainty” and that domestic demand remains weak, so that “the foundation for economic recovery still needs to be consolidated”.

The trends in August were somewhat better than expected, Julian Evans-Pritchard of Capital Economics said in a report.

“Fiscal support shored up investment but the real bright spot was a healthy pick-up in consumer spending, suggesting that households may be turning slightly less cautious,” he said.

China’s economy expanded by 0.8 percent in the three months ending in June compared with the previous quarter, down from 2.2 percent in January-March. That is equivalent to a 3.2 percent annual rate, which would be among the weakest pace in decades.