China August Activity Data Review: Further Divergence among the Three Horses
China’s economic imbalances continued to deepen in August, as sluggish retail sales and a fixed-asset investment slump highlighted persistent weakness in domestic demand, with analysts expecting more policy stimulus from Beijing to stave off downside risks. Export and Industrial numbers again salvage the otherwise poor economy, led by increase in AI equipment.
Total retail sales of consumer goods reached was up 0.4% year-on-year (down 0.13% month-to-month). Robust exports, buoyed by the global AI infrastructure buildout, have continued to support China's factories. But weak domestic demand remains a major risk that leaves the economy vulnerable to shocks such as weather disruptions and trade barriers. China logged another month of more than US$100 billion in trade surplus last month, with the full-year total on track to top US$1 trillion for a second year.
Real estate development investment dropped 19.9%, infrastructure declined 4.0%, and manufacturing investment decreased 2.3%. Intellectual property investment bucked the trend, rising 9.22%, in total leading to a decline of 7.2% yoy for the first eight months. The drop for the January–August period reflects a compounding contraction. Rather than finding a bottom, capital spending momentum continues to slow on a sequential basis. Weak real estate activity, cautious private-sector spending, and subdued domestic demand due all to continued decrease in real estate and it did not stop there, as Private companies are heavily scaling back long-term capital deployment too. This cautiousness stems from weak forward-looking order books and low domestic consumption, forcing firms into survival mode rather than expansion.
The primary driver behind underfunded investments is a massive liquidity bottleneck. Loan Volumes Evaporate: Chinese commercial banks extended a mere 60 billion yuan in new loans during August. For context, this missed consensus market expectations by a staggering margin (analysts anticipated closer to 400 billion yuan). Household was Deleveraging: Family and consumer borrowing contracted for the sixth consecutive month, mirroring a broader public desire to pay down existing debt rather than take on new financing. Outstanding loan growth consequently dipped to a record low of 4.9%
Though the three horses further diverges, the government is unlikely to change its fiscal and monetary policies for a mere one-month data. So monetary and fiscal policies would remain targeted. Market is now gauging the effectiveness of the “six network” infrastructure investment, assessing whether it will stop urban fixed asset investment from further bleeding.