China’s Slumping Economy: What the Latest Numbers Are Signaling

China’s trains, planes, stores and beaches were a little fuller last month than a year ago, and the pace of activity picked up at factories, particularly those making mobile phones and semiconductors.

A batch of numbers released on Friday by China’s National Bureau of Statistics showed a modest improvement in the country’s overall retail sales and industrial production during August. A series of small steps taken by the government over the summer, including two rounds of interest rate cuts, seems to be yielding a slightly better-than-expected improvement in the country’s economy.

“The national economy has accelerated its recovery, production and supply have increased steadily, market demand has gradually improved,” Fu Linghui, China’s director of national economic statistics, said at a news conference.

But many foreign economists were more guarded.

“Some may be of the view that China’s economy has already bottomed out, but we remain cautious,” said a research note from Nomura, a Japanese bank.

Real estate remains a persistent risk.

The broad troubles of China’s real estate sector continue to cast a long shadow over the country’s economic prospects. Property investment plummeted nearly a fifth in August from the same month a year ago, an even steeper decline than in July.

Construction sites around China appear visibly less busy, although activity has not stopped entirely and tower cranes still dot the skyline.

Construction of new apartment towers has faltered because of falling apartment prices.

Based on data released on Friday for prices of new apartments in 70 large and medium-sized cities across China, Goldman Sachs calculated that prices were falling in August at a seasonally adjusted annual rate of 2.9 percent, compared with 2.6 percent in July.

The statistics for new apartments considerably understate the speed and extent of price declines, however, as local governments have put heavy pressure on developers not to cut prices.

Prices of existing homes in 100 cities across China fell an average of 14 percent by early August from their peak two years earlier, according to the Beike Research Institute, a Tianjin research firm. Rents have fallen 5 percent.

Construction and related activities, including public works projects, make up at least a quarter of the Chinese economy. The government has tried to offset the plunge in apartment construction by demanding that already deeply indebted local and provincial governments undertake a debt-fueled wave of large projects, including new subways, municipal water systems, highways, public parks, high-speed rail lines and other infrastructure.

Banks are being squeezed.

Loans that China’s banks have made to property developers, dozens of which have defaulted on debt payments, are in trouble. So are loans to local governments and their financial affiliates involved in real estate. Banks are allowed to demand immediate repayment if work on a construction project has stopped, but they are reluctant to do so. Demand for new real estate loans remains weak.

The central bank, the People’s Bank of China, announced on Thursday that it was freeing banks to set aside smaller reserves and start extending more credit. The move was widely seen as intended to accommodate an upcoming large batch of bond issuance by local and provincial governments to pay for their infrastructure projects.

Investment in fixed assets was held back by property woes.

Overall investment in what are known as fixed assets was up 3.2 percent for the first eight months of this year compared to the same months last year — infrastructure spending plus some manufacturing investment offset the property nosedive. The pace through August represented a slowdown from 3.4 percent the prior month.

The production of semiconductors rose 21.1 percent in August from a year earlier. The government has more heavily subsidized chip-making as the United States has restricted the export to China of a few of the highest-speed computer chips and of the gear to manufacture them.

The value of China’s industrial production, a proxy for the activity of factories, rose 4.5 percent in August from a year ago after adjusting for considerable deflation in wholesale prices for factory goods over the past year. The increase had been 3.7 percent in July.

Consumers are changing how they spend.

Retail sales were up 4.6 percent in August from the same month last year, as rising energy prices likely pushed up retail sales, Nomura said.

A main reason that retail sales rebounded was because a year ago, people in China were still living under stringent “zero Covid” measures that restricted their activity.

Beer and wine production dropped from a year ago while output rose for bottled water, carried by many Chinese people during outdoor activities, and production of fruit and vegetable juices climbed sharply.