What's going on?
Key data released on Tuesday showed that – for all the COVID-related challenges so far – China’s economy just keeps bouncing back.
What does this mean?
The data was a double whammy of good news. For one thing, industrial production – the heart of the Chinese economy – climbed 5.6% and beat economists’ expectations. For another, the country’s retail sales rose 0.5% in August, recording their first gain of the year. Put the two together and you’ve got some very happy investors – so happy, in fact, they sent China’s currency to a 16-month high.
It looks like nervous Chinese consumers have finally joined Americans and Europeans in flashing the cash – even if, like their neighbors in the West, their spending is skewed more toward physical goods than to services. They’re less likely to catch COVID from a new hairdryer than from a trip to the hairdressers, after all…
Why should I care?
The bigger picture: End already, 2020.
More consumer spending is exactly what the Chinese government needs: it’s been trying to steer the economy away from a reliance on exports and toward a healthier domestic market. In fact, China’s hoping to have at least 560 million “middle income” consumers by 2025, creating a market that’d be even bigger than America’s. 2025 feels like an awfully long way away, mind you – especially considering economists reckon China’s economic growth will be as little as 2% this year. That’d be its weakest since 1976… (Tweet this)
For markets: Swede funding.
It isn’t just China reporting a rebound from the depths of the corona-crisis: H&M – the world’s second-biggest fashion retailer – reported better-than-expected quarterly revenue on Tuesday, as well as a profit of $229 million. That pushed shares of the Swedish retail giant 11% higher, which bodes well for rival Inditex’s results on Wednesday. Then again, as some European countries think about ending employee support programs and the US struggles to agree on next steps, the days of confident consumers may be numbered.