China’s industrial output grew faster than expected in August as a strong housing market and a government infrastructure spending spree fortified growth in the world’s second-largest economy.
Industrial output rose 6.3% in August from a year earlier, the National Bureau of Statistics said on Tuesday. This beat the analysts’ expectations that it would pick up only slightly to 6.1% because many plants were closed around Hangzhou, to guarantee blue skies for a G20 summit of world leaders earlier this month.
Because of the housing boom and infrastructure spree, China’s steel industry has also perked up as demands for building materials from iron beams to cement rose. China’s crude steel output rose 3% in August from a year ago, the sixth straight monthly rise.
Retail sales and car sales also easily beat expectations. Retail sales’ growth accelerated to 10.6% from 10.2% the previous month, when analysts only forecasted an increase of 10.3%, while car sales hit a 3-1/2 year high in August as buyers rushed to get new wheels before a tax cut expires at the end of the year.
Improvements in August was only small, but it suggest China’s third-quarter economic growth is holding up better than expected a few months ago and probably remains within the government’s 2016 target range of 6.5-7%.
China’s Present Economy State Might Be Unsustainable
Factory output and retail sales grew the fastest in five months as demands for products like coal and cars rebounded, though analysts warned that this outlook is troubled by weakness in manufacturing investment and a lack of spending by private firms, as most of these spending are shouldered by the government.
The alarming drop in private investment left the economy more dependent on government spending and there are worrying signs that the government is still doing a lot of the heavy lifting to keep China’s economy, despite ongoing attempts to reform the bloated, often heavily-indebted state-owned sector.
“It is very clear that the data is improving because of the property market. This is not sustainable,” Commerzbank economist Zhou Hao said.
Growth in private sector investment, which accounts for 61.4% of all investments, was unchanged at 2.1% in the January-August period. This shows not only that China’s economy is still being heavily supported by state-owned companies, but also that owners of private firms are reluctant to spend their money, a sign that they are lacking confidence in the future.
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