Factory output strengthens in China, but Covid fears hit retail sector
By Abigail Townsend
Date: Wednesday 15 Dec 2021
(Sharecast News) - Chinese factory output unexpectedly grew in December, but both retail sales and investment growth missed forecasts, official data showed on Wednesday.
Factory production rose to 3.8% year-on-year, boosted by improved energy output. The figure was ahead of October's 3.5% increase and beat consensus for a 3.7% rise.
But retail sales rose by 3.9% on the same basis, well below both October's 4.9% rise and forecasts for a 4.7% improvement. Fixed asset investment rose by 5.2% on an annual basis in the first 11 months in the year, marginally missing forecasts for a 5.4% rise and below the 6.1% growth recorded in the ten months to October.
Craig Botham, chief China+ economist at Pantheon Macroeconomics, said: "The first full month of uninterrupted energy supply saw a boost to industrial production, albeit to still modest levels.
"It is worth recalling that despite the gains from September and October, today's reading is still the third weakest on record if we exclude the Covid-distorted February 2020 reading."
"Zero-Covid remains a challenge for retail sales, and a December spike in cases is set to weigh on year-end performance. Omicron looks highly likely to be spreading within China. Given the greater apparent transmissibility of Omicron, this implies more frequent lockdowns in the months to come."
Michael Hewson, chief market analyst at CMC Markets, said: "The most recent trade numbers showed a big jump in imports in November, helped by inventory rebuilding. This decent performance built up expectations for the latest retail sales and industry production numbers, where you would expect to see improvement in both. However, that provide not to the case.
"Retail sales is especially disappointing, given that it covers the period for Singles Day, and would appear to indicate that Chinese consumers remain cautious amid concerns over Covid outbreaks and higher inflation."
Separate data released on Wednesday also showed China's property market was continuing to struggle, with house prices, sales and construction all down.
New home prices fell 0.33% month-on-month, the biggest decline since February 2015, while property investment eased to 6.0% in the year-to-date, from 7.2% in the year to October.
Pantheon Macroeconomics' Botham said: [The] deterioration is not a surprise, in the context of ongoing collapses in sales and discounting by developers desperate to meet debt repayments and other liabilities. It adds pressure to the broader sector, and is an obvious channel for contagion from Evergrande and now also Kaisa, Aoyuan, Fantasia and most recently Shimao, to other developers, for whom sales remain the key, if plummeting, source of revenue."
Mitul Kotecha, chief EM Asia and Europe strategist at TD Securities, said: "China's November data slate revealed more signs of slowing. Aside from an upside in industrial production, the data was disappointing.
"[The] data lends credence to the recent 50 basis point cut in the Reserve Ratio Requirement and may support growing speculation of a Loan Prime Rate cut, though we think such a move is unlikely next week, as reflected in the unchanged medium term lending facility rate today."
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