Headwinds still face China’s economy despite recovery signals

China’s factory output and retail sales grew at a faster pace in August, but tumbling investment in the crisis-hit property sector threatens to undercut a flurry of support steps that are showing signs of stabilising parts of the wobbly economy.

Chinese policymakers face a daunting task in trying to revive growth after a brief post-COVID bounce in the wake of persistent weakness in the crucial property industry, a faltering currency, and weak global demand for its manufactured goods.Industrial output rose 4.5% in August from a year earlier, beating expectations for a 3.9% increase in a Reuters poll of analysts.

Retail sales, a gauge of consumption, also increased at a faster 4.6% pace in August, aided by the summer travel season, and was the quickest growth since May. The positive data suggests that a spate of recent measures to shore up the economy are starting to bear fruit, prompting JP Morgan to raise its forecast of China’s 2023 gross domestic product growth to 5% from prior 4.8%.

However, a durable recovery is far from assured, especially as confidence remains low in the embattled property sector and continues to be a major drag on growth. The markets showed relief at some of the better-than-expected indicators, such as the Chinese yuan touching two-week highs against the dollar, the blue-chip CSI 300 Index (.CSI300) being up 0.2%, and Hong Kong’s Hang Seng Index (.HSI) climbing 1% in early morning trade.