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Chinese authorities on Monday released new data on industrial production, investment and retail sales for July, showing signs of weakness in the economy. Industrial production growth was the slowest in 11 months, increasing 6.4% from a year ago. Auto production has been hit by the global semiconductor shortage.
Retail sales growth in July was the weakest of the whole year, while investments in fixed assets also missed economists’ expectations.
The Covid-19 outbreak likely contributed to at least part of the slowdown in retail sales towards the end of July, according to Julian Evans-Pritchard, senior Chinese economist for Capital Economics.
The youth unemployment rate worsened in July to 16.2%, according to government data. This is the highest rate in a year.
The virus outbreak, as well as the disruption caused by severe flooding in central China, “appears to have disrupted the hiring of new graduates somewhat,” Evans-Pritchard added in a research note Monday.
Fu of the SNB said a few factors are contributing to the pressure on the job market. More than 9 million new university graduates are looking for jobs in China this year. And because of the pandemic, many students who were studying abroad have returned home to look for work.
Persistent supply bottlenecks and tighter credit conditions have heightened concerns about economic growth. Infrastructure spending was particularly weak when the authorities withdrew their budget support.
“Tighter restrictions on borrowing among developers appear to ease some of the real estate investment,” Evans-Pritchard added.
Automotive manufacturing was the worst performer among major industrial sectors, contracting 8.5% in July from a year earlier. This was mainly due to the current shortage of chips, according to Iris Pang, chief economist for Greater China at ING.
Production of computers, telecommunications equipment and other electronics is also expected to slow in the coming months due to chip supply issues, Pang added.
New challenges await the Chinese economy. Authorities last week closed a terminal in the port of Ningbo-Zhoushan – the third largest container port in the world – after a dock worker tested positive for Covid. The port handles cargo that would fill about 78,000 20-foot containers every day, and the terminal that closed represents about one-fifth of the port’s volume.
“This will adversely affect the import and export business in the Shanghai area”, she said. “We expect terminal congestion to take several months to dissipate.”
Evans-Pritchard, meanwhile, said he expected spending to pick up as the virus is brought under control and restrictions are lifted in China.
But he anticipated the slowdown elsewhere is deepening as the People’s Bank of China is likely to continue to contain credit growth.
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