China’s Industrial Production and Retail Sales Grows Below Expectation

China’s retail sales expanded below projections in the month of October, as opposed to the investment and industrial production figures, which were consistent with expectation and indicated a continued stabilization. Weaker than expected retail sales figures might have been because of seasonal factors, noted Nordea Bank in a research report.

Industrial production, a broad indicator of factory output, rose at an annualized 6.1% in October from a year earlier, the National Bureau of Statistics reported Monday in Beijing. Industrial production rose by a similar amount the previous month.

China’s economic growth steadied at 6.7% in the third quarter, matching gains in the previous two quarters. However, slumping private investment, burgeoning debt and the risks of a large scale property correction continued to leave investors on edge. The data, while showing stability, also suggested growing dependence on government spending for growth.

Meanwhile, retail sales growth eased to 10 percent from 10.7 percent in September, signaling a slowdown in domestic demand. A similar growth was last seen in May. The annual pace of expansion was expected to stabilize at 10.7 percent.

During January to October, retail sales increased 10.3 percent from the same period of last year.

Meanwhile, fixed asset investment increased 8.3 percent in the January to October period compared to 8.2 percent growth registered during January to September.

China’s retail sales data have always been greatly volatile and seasonal. According to Nordea Bank, there might be two reasons for retail sales to have come in below expectations in October. Firstly, the first week of October was a long national holiday due to the annual “golden week”. Several Chinese consumers probably spent on travelling and not on buying goods. Moreover, millions have travelled abroad and bought goods there.

Meanwhile, fixed assets investment expanded 8.3 percent in the initial 10 months of 2016, underpinned by infrastructure and manufacturing. The sharp rebound in the housing market in the beginning of 2016 has helped in playing an important role in stimulating both investment and production. But the market is showing indications of easing due to tighter regulation. Therefore the momentum is likely to deteriorate in 2017, added Nordea Bank.

Today's data suggest that the recent recovery in economic activity continued into the fourth quarter, Julian Evans-Pritchard, a China economist at Capital Economics, said.

The economist expects growth to hold up well for another quarter or two. However, with credit growth now slowing and the property market beginning to cool the drivers of the recent recovery look set to fizzle out early next year, he added.