Retail sales rose 0.5% in August after consumer spending had lagged other economic indicators © AFP via Getty Images

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China's retail sales returned to growth for the first time since the coronavirus outbreak, in the latest sign that consumer spending was catching up with the country's wider economic recovery.

Official data released on Tuesday showed a rise of 0.5 per cent in August compared with the same month a year ago. Economists had anticipated that retail sales would be flat. 

Consumer demand has been a weak spot in China's recovery from the coronavirus outbreak, which has been fuelled by state-supported industrial growth that grew for the eight consecutive month in August. But households had remained cautious over spending and the risk of new outbreaks.

Retail sales have fallen every month this year before August and are still down 8.6 per cent for 2020.

“It’s going in the right direction but there’s a long way to go to characterise this as a balanced economy,” said Fred Neumann, co-head of Asian economic research at HSBC. Mr Neumann pointed out that sales remained down on an inflation-adjusted basis. 

“Beneath the surface there’s still lasting scars from the pandemic . . . it will take time and government policy to heal those scars,” he added.

China’s recovery is being closely watched by other countries still grappling with high rates of infection and extensive lockdown measures.

Industrial production sharply outperformed retail sales in August, growing 5.6 per cent compared with the same month last year, and is now up 0.4 per cent this year. Property investment has risen by 4.6 per cent year-to-date compared with last year.

The economic data helped to buoy Chinese stocks into positive territory on Tuesday while its currency hit its highest level in more than a year.

Chinese industrial production rose at its fastest rate this year in August

The onshore-traded renminbi strengthened as much as 0.3 per cent to Rmb6.7897 per US dollar early on Tuesday, its firmest level since May 2019. The less tightly regulated offshore-traded renminbi strengthened 0.3 per cent, past Rmb6.8 per dollar.

China’s economy returned to growth in the second quarter, when gross domestic product added 3.2 per cent after a historic decline in the first three months of the year.

The recovery gained momentum after new cases of the virus slowed to a trickle and government infrastructure projects helped to support economic activity.

It has been backed by strong growth in exports, which rose almost 10 per cent in August — their highest increase of any month this year. House prices have also continued to rise.

Oxford Economics, a consultancy, suggested that China’s economic recovery was “on a reasonably firm footing now and should continue through Q4 and into 2021, with solid investment growth, gradually recovering consumption momentum and resilient exports”.

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