China’s Downturn Moderates, Though Property Woes Linger

Chinese fixed-asset investment in the first eight months of 2022 was up 5.8% from a year earlier, beating the median 5.5% forecast of economists surveyed by The Wall Street Journal. The pickup in investment was led by robust spending on infrastructure projects, a sign that Beijing’s rescue measures are starting to have some effect.

Industrial production, a measure of factory output, mining and other activities, edged higher as power shortages triggered by drought and extreme heat across large swaths of the country eased. In August, the measure was up 4.2% from a year earlier, beating both expectations and July’s 3.8%.

China’s labor market improved as well. The country’s headline measure of joblessness, the urban surveyed unemployment rate, inched down to 5.3% in August from 5.4% the previous month. Youth unemployment also declined, to 18.7%, from a record high of 19.9% in July.

August’s economic-data rebound was mainly driven by momentum in automotive and equipment manufacturing as well as in China’s economically stronger coastal provinces, though favorable comparisons with the year-earlier period also flattered the numbers, statistics bureau spokesman

Fu Linghui

said Friday.

The signs of improvement follow a number of steps that Chinese authorities unveiled last month to prop up growth, including extending hundreds of billions of yuan in credit to ramp up infrastructure projects and support the power and agriculture sectors. The country’s central bank also unexpectedly cut two key interest rates in mid-August.

Weakness continues to plague many other sectors of the economy, however, as Covid-19 restrictions keep squelching demand across the country.

Retail sales, a key gauge of China’s goods and services consumption, remained soft. While year-over-year growth accelerated to 5.4% in August from 2.7% in July, in large part due to a lower base for comparison in the year-earlier period, seasonally adjusted retail sales actually declined 0.8% when compared directly with July’s, according to Capital Economics.

Tourism data for the Mid-Autumn Festival in early September suggested Chinese consumers are likely to keep their purse strings tight for the time being. Tourism spending during the three-day holiday fell 22.8% from a year earlier, according to government data. A mobility index by Chinese technology giant

Baidu Inc.,

meanwhile, showed the number of passenger trips falling 38% from the previous year.

Movie box-office revenue plunged 25.9% from a year earlier over the long weekend, despite an increase in the number of movies released, according to industry tracker Lighthouse Data Pro.

Of larger import were further signs that a housing slump—a year old, with no end in sight—and escalating attempts to stifle Covid-19 could hamstring any upturn in economic fortunes.

Average new-home prices in 70 major Chinese cities in August were down 2.1% from a year earlier, accelerating from a 1.7% decline in July, according to calculations based on data released Friday by China’s statistics bureau.

That was the steepest year-over-year decline since September 2015, and came despite rate cuts and a loosening of real-estate regulations across the country last month. In month-over-month terms, new-home prices have fallen or remained flat for 12 consecutive months, surpassing an 11-month slide in 2014-15.

“All told, the August data point to [a] slight loss of momentum overall,” economists from Capital Economics told clients in a Friday note, predicting that business activity will remain weak for the rest of the year.

A pullback in exports reported last weeksuggests that Beijing may not be able to rely much longer on the sale of made-in-China goods to offset softening demand at home.

A weakening Chinese currency, which broke the 7-yuan-to-the-dollar barrier for the first time in more than two years, could bolster the competitiveness of Chinese goods in international markets. But it has fueled concerns in Beijing about capital flight, potentially complicating any impulse toward further easing measures.

Covid controls remain a concern, nearly three years into the pandemic. In recent weeks, government officials have stepped up their vigilance against potential outbreaks ahead of a congress of China’s Communist Party slated to begin October 16.

As of last week, cities with districts classified as mid-to-high-risk accounted for about 37% of China’s gross domestic product, higher than when a wave of outbreaks in the spring locked down Shanghai, according to Goldman Sachs.

As a result of the Covid and housing challenges, economists have continued slashing their 2022 growth forecasts for China, in many cases to below 3%. The loss of China as a reliable source of growth adds to worries of a global recession.

Fitch Ratings this week said it expects Chinese GDP to expand by just 2.8% in 2022, from an earlier forecast of 3.7%. The credit-rating company forecasts a bounceback to 4.5% next year, though that too is down from a previous prediction of 5.3%.

Jian Chang,

chief China economist for

Barclays,

last week cut her full-year growth forecast to 2.6% from 3.1%.

This week, China’s cabinet said it would extend the equivalent of $28.7 billion in new government-subsidized loans to manufacturers and service providers, while deferring more than $60 billion in taxes for manufacturers. The nation’s state-owned big banks also lowered their deposit rates on Thursday, a move that analysts say could pave the way for the central bank to cut benchmark lending rates.

“The stimulus hasn’t done much in terms of boosting demand,” said

Bo Zhuang,

a senior strategist at Loomis Sayles. “All it does is put a floor under the economy.”

—Grace Zhu and Bingyan Wang in Beijing contributed to this article.

Chinese fixed-asset investment in the first eight months of 2022 was up 5.8% from a year earlier, beating the median 5.5% forecast of economists surveyed by The Wall Street Journal. The pickup in investment was led by robust spending on infrastructure projects, a sign that Beijing’s rescue measures are starting to have some effect.

Industrial production, a measure of factory output, mining and other activities, edged higher as power shortages triggered by drought and extreme heat across large swaths of the country eased. In August, the measure was up 4.2% from a year earlier, beating both expectations and July’s 3.8%.

China’s labor market improved as well. The country’s headline measure of joblessness, the urban surveyed unemployment rate, inched down to 5.3% in August from 5.4% the previous month. Youth unemployment also declined, to 18.7%, from a record high of 19.9% in July.

August’s economic-data rebound was mainly driven by momentum in automotive and equipment manufacturing as well as in China’s economically stronger coastal provinces, though favorable comparisons with the year-earlier period also flattered the numbers, statistics bureau spokesman

Fu Linghui

said Friday.

The signs of improvement follow a number of steps that Chinese authorities unveiled last month to prop up growth, including extending hundreds of billions of yuan in credit to ramp up infrastructure projects and support the power and agriculture sectors. The country’s central bank also unexpectedly cut two key interest rates in mid-August.

Weakness continues to plague many other sectors of the economy, however, as Covid-19 restrictions keep squelching demand across the country.

Retail sales, a key gauge of China’s goods and services consumption, remained soft. While year-over-year growth accelerated to 5.4% in August from 2.7% in July, in large part due to a lower base for comparison in the year-earlier period, seasonally adjusted retail sales actually declined 0.8% when compared directly with July’s, according to Capital Economics.

Tourism data for the Mid-Autumn Festival in early September suggested Chinese consumers are likely to keep their purse strings tight for the time being. Tourism spending during the three-day holiday fell 22.8% from a year earlier, according to government data. A mobility index by Chinese technology giant

Baidu Inc.,

meanwhile, showed the number of passenger trips falling 38% from the previous year.

Movie box-office revenue plunged 25.9% from a year earlier over the long weekend, despite an increase in the number of movies released, according to industry tracker Lighthouse Data Pro.

Of larger import were further signs that a housing slump—a year old, with no end in sight—and escalating attempts to stifle Covid-19 could hamstring any upturn in economic fortunes.

Average new-home prices in 70 major Chinese cities in August were down 2.1% from a year earlier, accelerating from a 1.7% decline in July, according to calculations based on data released Friday by China’s statistics bureau.

That was the steepest year-over-year decline since September 2015, and came despite rate cuts and a loosening of real-estate regulations across the country last month. In month-over-month terms, new-home prices have fallen or remained flat for 12 consecutive months, surpassing an 11-month slide in 2014-15.

“All told, the August data point to [a] slight loss of momentum overall,” economists from Capital Economics told clients in a Friday note, predicting that business activity will remain weak for the rest of the year.

A pullback in exports reported last weeksuggests that Beijing may not be able to rely much longer on the sale of made-in-China goods to offset softening demand at home.

A weakening Chinese currency, which broke the 7-yuan-to-the-dollar barrier for the first time in more than two years, could bolster the competitiveness of Chinese goods in international markets. But it has fueled concerns in Beijing about capital flight, potentially complicating any impulse toward further easing measures.

Covid controls remain a concern, nearly three years into the pandemic. In recent weeks, government officials have stepped up their vigilance against potential outbreaks ahead of a congress of China’s Communist Party slated to begin October 16.

As of last week, cities with districts classified as mid-to-high-risk accounted for about 37% of China’s gross domestic product, higher than when a wave of outbreaks in the spring locked down Shanghai, according to Goldman Sachs.

As a result of the Covid and housing challenges, economists have continued slashing their 2022 growth forecasts for China, in many cases to below 3%. The loss of China as a reliable source of growth adds to worries of a global recession.

Fitch Ratings this week said it expects Chinese GDP to expand by just 2.8% in 2022, from an earlier forecast of 3.7%. The credit-rating company forecasts a bounceback to 4.5% next year, though that too is down from a previous prediction of 5.3%.

Jian Chang,

chief China economist for

Barclays,

last week cut her full-year growth forecast to 2.6% from 3.1%.

This week, China’s cabinet said it would extend the equivalent of $28.7 billion in new government-subsidized loans to manufacturers and service providers, while deferring more than $60 billion in taxes for manufacturers. The nation’s state-owned big banks also lowered their deposit rates on Thursday, a move that analysts say could pave the way for the central bank to cut benchmark lending rates.

“The stimulus hasn’t done much in terms of boosting demand,” said

Bo Zhuang,

a senior strategist at Loomis Sayles. “All it does is put a floor under the economy.”

—Grace Zhu and Bingyan Wang in Beijing contributed to this article.