China's economy showed signs of stabilization in August, with key indicators pointing to continued growth momentum, official data released on Monday showed, suggesting resilience in the face of persistent external pressures and domestic challenges.
However, economists warned that the recovery remains fragile, hampered by lackluster domestic demand, the ongoing property sector correction, and the impact of the United States' tariff policies on exports. They called for further moves to consolidate the recovery trend.
As China still retains plenty of policy space and tools, the economists expect to see additional policy stimulus in the fourth quarter — including forceful fiscal spending and further policy rate cuts — to stabilize growth and employment and help meet the country's full-year growth target of around 5 percent.
Figures released on Monday by the National Bureau of Statistics showed that the Chinese economy maintained its overall stability but showed signs of softening, with industrial output up by 5.2 percent year-on-year in August, down from 5.7 percent growth in July.
Retail sales, a key measurement of consumer spending, grew 3.4 percent year-on-year in August, compared with a 3.7 percent rise in July, the NBS said.
Jeremy Zook, lead analyst for China at Fitch Ratings, said industrial production growth remained above 5 percent year-on-year as resilient exports continue to provide support for industrial activity, while tepid consumer confidence continued to weigh on the pace of retail sales growth.
Although the latest data point to a softening of economic activity in China, Zook noted that the nation's economy has been broadly resilient in the face of rising external challenges from US tariffs.
On the back of China's strong economic performance in the first half of the year, Fitch Ratings recently revised upward its full-year growth forecast for China to 4.7 percent from 4.2 percent earlier, which is closer to the country's growth target of around 5 percent.
Still, Zook cautioned that insufficient domestic demand, the ongoing property sector correction, and deflationary risks stemming from industrial overcapacity remain key challenges for the economy.
Looking to the remainder of the year, Zook said there is still space for the government to ramp up policy support. "Fiscal policy is already quite expansionary this year, and we expect the government to focus on implementing the budget plans rather than leaning on more stimulus. ... On monetary policy, we currently forecast a modest easing through 20 basis points of rate cuts."
Liu Qiao, dean of Peking University's Guanghua School of Management, agreed, saying that "the Chinese government still has a lot of policy space to stimulate the economy". He underlined the importance of further fostering a friendly business environment to motivate entrepreneurial spirit among smaller companies to fuel innovation-driven growth.
Liu said he is confident that China will achieve this year's GDP growth target of around 5 percent, with fiscal transfers to low-income households and fertility subsidies to support growth in the coming months.
With rising investment in research and development and stronger innovation momentum, Liu said China is well-positioned to maintain solid growth over the coming years as the country's total factor productivity growth — a measurement of how efficiently an economy uses inputs to produce output — is likely to recover to about 2 percent in the next five to 10 years.
New growth drivers
Despite the pressures and headwinds ahead, Fu Linghui, spokesman and chief economist at the NBS, said that China's economy — bolstered by a solid foundation, strong resilience and vast potential — retains multiple favorable conditions supporting high-quality development.
"China's economy will likely continue to maintain a trajectory of stability and improvement, supported by accelerated cultivation of new growth drivers, strengthening market vitality, and effective macroeconomic policies," he said at a news conference in Beijing on Monday.
The NBS data also showed that China's equipment manufacturing and high-tech manufacturing reported strong performance in terms of industrial output in August, expanding 8.1 percent and 9.3 percent, respectively.
Looking ahead, Wang Peng, a researcher at the Beijing Academy of Social Sciences, said China's economy is expected to gain further momentum in the fourth quarter, supported by stronger consumption-boosting initiatives, signs of stabilization in the property market, and a rebound in consumer inflation. "China has the conditions and capabilities to achieve its annual growth target."
Wang Qing, chief macroeconomic analyst at Golden Credit Rating International, said China is likely to roll out new incremental policy measures in the fourth quarter to stabilize economic momentum and increase jobs. "The possible moves may include fiscal expansion, policy rate cuts, and stronger efforts to shore up the property market."
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