China’s economy continues to recover as industrial production rises in July

The country is on track to be the only major economy to achieve positive growth this year, according to Bank of Singapore

An employee works on a car seat assembly line at a factory in Shanghai. China’s economy continued to recover in July on the back of higher industrial production. Reuters

China, the world’s second-largest economy, continued to recover from the coronavirus-induced economic slowdown as industrial production increased in July.

Industrial output rose by 4.8 per cent year on year in July, although retail sales remained in negative territory at 1.1 per cent.

“China’s rebound continues to be led by state activities in industrial production, infrastructure and property investment while consumers stay cautious,” Bank of Singapore said in a note on Monday.

“The recovery is uneven but China remains on track to be the only major economy to achieve positive growth in 2020 after GDP rose from minus 6.8 per cent year on year in the first quarter of 2020 to 3.2 per cent year on year in the second quarter.”

China was the first country to report coronavirus cases in December last year.

However, strict movement restrictions introduced by Beijing helped limit the spread of the disease inside the country, aiding its economic recovery.

The Caixin/Markit Manufacturing Purchasing Managers' Index, a composite indicator designed to provide a single-figure snapshot of operating conditions in the manufacturing economy, rose from 51.2 in June to to 52.8 last month, marking the sector's third consecutive month of growth on the back of higher output.

“We see the Chinese yuan rising to 6.75 against the US dollar over the next 12 months, supported by stronger growth and higher bond yields in China,” Bank of Singapore said.

The People’s Bank of China injected 700 billion yuan ($100.7bn/Dh370bn) into the economy on Monday through a medium-term lending programme that is now in its fourth month. The loans have an interest rate of 2.95 per cent.

The new funds exceeded the 550bn yuan total for the past two months, according to Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

“The excess Chinese liquidity whet investors’ appetite and somewhat relieved the negative pressure on US equity futures, pushing the Dow, S&P and Nasdaq futures higher [by 0.37 per cent, 0.30 per cent and 0.44 per cent, respectively] after a mixed Friday close,” Ms Ozkardeskaya said.

“But the stalemate [in] fiscal talks in the US will [probably] weigh on investor sentiment, as the next US fiscal boost will not see the daylight in the coming weeks, with the senate adjourned until early September.”