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China’s economy shows more signs of strengthening as industrial output picks up, investment holds steady

More official figures released on Tuesday suggest that China’s slowing economy may be picking up steam.

Monthly data for August recorded slightly higher industrial output, a pickup in household spending and stable fixed-asset investment.

The nation’s economic performance last month was aided by a sizzling housing market.

Residential property sales surged 25.6 per cent by floor area in the first eight months from a year earlier. The growth was even stronger at 40.1 per cent if measured by value as average property prices are on the rise, led by Shenzhen, Shanghai and Beijing.

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The stronger-than-expected numbers released by the National Bureau of Statistics on Tuesday, together with a big improvement in August import data, suggest that Beijing’s pro-growth measures through increased government spending over the past months is halting a deepening economic slowdown.

A stronger economy will make it easier for Beijing to take painful economic restructuring measures and help the government to cope with global headwinds stemming from a possible US Federal Reserve interest rate increase later this year and Britain’s decision to leave the European Union.

“The economy shows a full bodied recovery … and the degree of recovery is better than estimated,” said Liao Qun, chief economist at China Citic Bank International.

Liao said the August data would offer comfort to economic policymakers as China was likely post economic growth above 6.5 per cent in the third quarter.

China’s fixed-asset investment expanded 8.1 per cent from January to August, the same rate as in the first seven months of the year. Growth in industrial output quickened to 6.3 per cent last month from six per cent in July, the statistics agency said.

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The downward pressure on China’s growth should diminish, Louis Kuijs, head of Asia economics at Oxford Economics, wrote in a research note.

“While further stimulus remains necessary to reach the government’s GDP growth target of at least 6.5 per cent this year, the outlook has improved slightly after the August data,” he said.

China’s State Council decided last week that it would continue to spend money on “weak links” in the economy by boosting major infrastructure development and offering more public-private partnership projects to investors outside the state sector.

Meanwhile, China’s central bank has refrained from cutting benchmark interest rates or loosening restrictions on how much money banks must hold in reserve.

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Lu Zhengwei, the chief economist at Industrial Bank in Shanghai, said the August rebound may be short lived as effects of government led spending on the economy may wane.

“What’s of concern is the sustainability of the economic rebound. This is the core of the problem,” said Lu. “If you rely on investment to boost growth, it will be problematic.”

China’s finance ministry said on Tuesday that nationwide fiscal revenues rose only 1.7 per cent in August from a year earlier to 989.4 billion yuan (HK$1.14 trillion) while fiscal expenditures rose 10.3 per cent to 1,418 billion yuan.