China Retail Sales Miss Forecast, Growth Jitters Resurface; AUD/USD and Hang Seng Retreat

China Economic Data Eases Economic Growth Jitters

China’s fragile economy showed fresh cracks in August. Falling house prices, softer retail sales, and weaker factory output challenged Beijing’s 5% growth target. The latest data eased some housing market jitters but fueled concerns about consumer demand and industrial momentum, leaving investors eyeing Beijing’s policy response.

Housing Prices Fall for a Fourth Month

The housing sector remains a point of focus as Beijing aims to boost domestic consumption to bolster the economy. An end to China’s real estate sector crisis could be a boon for consumers and household spending. Conversely, a continued drop in house prices could weigh on household wealth and spending.

Used home prices declined by 0.58% month-on-month (MoM), a sharper drop than July’s decline. New home sales also fell MoM, pressuring real estate stocks. The ongoing monthly decline in house prices left the Hang Seng Mainland Properties Index down 1.25% in early trading.

The YoY figures showed a smaller decline but failed to ease concerns. YoY, house prices fell 2.5% in August, easing slightly from a 2.8% drop in July, versus forecasts of a 2.6% decline.

Consumer Spending and Industrial Production Disappoint

Chinese economic data signaled a further loss of momentum, challenging Beijing’s 5% GDP growth target for 2025 as US-China trade talks resumed.

• Retail Sales: +3.4% YoY in August compared with +3.7% in July. Forecast: +3.8%.
• Unemployment Rate: Rises from 5.2% in July to 5.3% in August. Forecast: 5.2%.
• Industrial Production: +5.2% YoY in August, down from +5.7% in July. Forecast: +5.8%.

August’s data dashed hopes of a speedy recovery from July’s slowdown, revealing weakening domestic and external demand. The pullback in industrial production was consistent with the slowdown in exports. Chinese exports slowed sharply from 7.2% year-on-year in July to 4.4% in August as direct and transshipment tariffs impacted shipments.

Rising unemployment and the continued drop in house prices likely weighed on consumer sentiment, affecting household spending. August’s private sector PMIs revealed intensifying margin pressures, leading to job cuts across the manufacturing and services sectors.

Higher unemployment could derail Beijing’s efforts to boost private consumption. August’s unemployment data suggested no quick recovery to youth unemployment that soared 17.8% in July (June: 14.5%).

 

Market Reaction to China’s Economic Indicators

The Hang Seng Index and the AUD/USD pair reacted to the weaker-than-expected data as US-China trade tensions escalated.

On Monday, September 15, the Hang Seng Index briefly fell to a low of 26,420 in response to the numbers. At the time of writing, the Hang Seng Index was up 0.23% to 26,450.

In the forex markets, the weaker-than-expected retail sales, unemployment, and industrial production numbers weighed on the Aussie dollar. AUD/USD fell from $0.66584 to $0.66551 before recovering to $0.66552, up 0.12% at the time of writing.

Hopes of further stimulus support and expectations of a Fed rate cut tempered the impact of August’s weak data.

Looking Ahead

The outcome of US-China trade talks could be crucial for Mainland China and Hong Kong-listed stocks. Easing trade tensions and progress toward a trade agreement could lift sentiment. However, an escalation in the trade war would likely weigh on risk assets.

US-China trade talks resumed on Sunday, September 14, amid calls from the US administration to hike tariffs on China. CN Wire reported:

“US and Chinese officials began talks in Madrid on Sunday on their strained trade ties, a looming divestiture deadline for Chinese short video app TikTok, and Washington’s demands that its allies place tariffs on China over its purchases of Russian oil.”

Beyond trade talks, traders should track Beijing’s policy pledges. Measures to support the housing sector, the labor market, and stimulus aimed at boosting consumption could counter the impact of rising US-China tensions on regional stocks.

Track the latest developments and policy signals here. Given the latest data, a cautious approach is essential.