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China’s factory, retail sectors plunge as COVID hits growth

China's factory, retail sectors plunge as COVID hits growth
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  • China’s industrial production growth slows more than expected
  • Retail sales contraction deepens
  • Real estate investment falls the most in more than two decades
  • National unemployment rate rises
  • Near-term outlook darkens after COVID easing: analysts

BEIJING, Dec 15 (Reuters) – China’s economy lost further strength in November as factory output slowed and retail sales continued to fall, missing forecasts and posting their worst readings in six months, hampered by rising of COVID-19 cases and widespread virus restrictions.

The data suggested a further deterioration in economic conditions, as lockdowns in many cities, the housing crisis and weakening global demand pointed to a bumpy road, even as Beijing abandoned Following some of the strictest antivirus restrictions in the world widespread and rare public protests.

Industrial production rose 2.2% in November from a year earlier, below expectations for a 3.6% rise in a Reuters poll and a significant slowdown from the 5.0% growth seen in October, data from the National Bureau of Statistics (NBS) showed on Thursday. It marked the slowest growth since May, partly due to disruptions in key manufacturing hubs Guangzhou and Zhengzhou.

Retail sales fell 5.9% amid widespread weakness in the services sector, also the biggest contraction since May. Analysts had expected the consumption gauge to decline 3.7%, accelerating from a 0.5% drop in October.

In particular, sales in the contact-intensive catering sector fell by 8.4% compared to the previous year, accelerating from the 8.1% drop in October.

Meanwhile, car production plunged 9.9%, up from an 8.6% rise in October.

China’s yuan fell against the dollar on Thursday as the data hit investor sentiment.

“The weak activity data suggests that policy needs to be eased further to revive growth momentum,” said Hao Zhou, chief economist at GTJAI. “The increased size of the MLF rollover this morning is in line with the general easing tones. Looking ahead, we also forecast MLF rates to be cut by 10bp next quarter.”

China’s central bank increased cash injections into the banking system on Thursday and maintained interest rates on medium-term policy loans, or MLFs, to keep liquidity conditions ample.

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The world’s second-largest economy has been depressed by its zero-COVID policy as strict movement controls hampered consumption and production. Other headwinds facing the country are falling property prices, global recession risks and geopolitical uncertainties.

Property investment fell 19.9% ​​on-year, the fastest pace since the statistics office began collecting data in 2000, according to Reuters calculations based on NBS data.

Policymakers have deployed support for the sector on almost all fronts, including Bank lines of creditbond financing and equity financing, but analysts said such effects have yet to be seen as home sales remain weak.

Investment in fixed assets expanded 5.3% in the first 11 months of the year, compared to expectations of a 5.6% increase and 5.8% growth in January-October.

Hiring remained low among companies wary of their finances. The national unemployment rate increased to 5.7% in November from 5.5% in October. Youth unemployment fell to 17.1% from 17.9% in October.

“The December data could be even worse, not because things are getting worse in China, but because the end of the tunnel is near,” said Alicia Garcia-Herrero, chief Asia-Pacific economist at Natixis.

“I expect a big collapse in industrial production in December. This will be the immediate consequence of the opening,” he said, lowering fourth-quarter GDP growth to 2.8% from 3% previously.

China has proposed plans to expand domestic consumption and investment, state media said on Wednesday, as policymakers face multiple challenges following the abrupt relaxation of tough COVID-related restrictions, which are expected to give way to a surge in infections.

That would hurt businesses and consumers, while the weakening global economy hurts Chinese exports.

China’s economy grew just 3% in the first three quarters of this year and is expected to stay at that rate throughout the year, well below the official target of “around 5.5%”.

All eyes are on the annual closed-door event. Central Economic Work Conference, when Chinese leaders meet to set next year’s economic agenda. More stimulus steps are likely to be planned, eager to shore up growth and ease disruptions caused by the sudden end of COVID-19 restrictions, analysts and policy experts said.

($1 = 6.9593 Chinese yuan)

Additional reporting by Liz Lee, Liangping Gao, and Kevin Yao; Edited by Sam Holmes

Our standards: The Thomson Reuters Trust Principles.

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