Pickups in China’s consumer spending and industrial output last month provided a needed boost to the world’s second-largest economy, as policymakers continue to weigh support for a recovery beset by an ongoing property crisis.
Retail sales climbed 7.6 per cent in October from a year earlier, the National Bureau of Statistics said Wednesday, a better-than-forecast result aided in part by favourable comparisons to a weak month in 2022.
October also captured the week-long Golden Week holiday period, during which many Chinese travelled around the country and shopped.
Industrial production rose 4.6 per cent, slightly higher than projections.
Those figures helped offset obvious signs of weakness in the housing market: A contraction in property development investment worsened through the first 10 months of the year, dragging on fixed-asset investment growth.
The data suggested China’s economy is still retaining some of its momentum going into the final stretch of 2023, even if the headline figures partly look better because they compare to pandemic-hit 2022.
That may provide some temporary relief to investors, given how recent indicators have flashed warning signs on everything from factory activity and exports to consumer deflation pressures and muted borrowing.
“China’s economy seems to have averted fears about a broader sequential slowdown in October,” Union Bancaire Privee senior economist Carlos Casanova said.
“With that being said, the devil is in the details,” he said, noting the drag in real estate investment and adding that official strategies to restructure debt in the property sector will take several years to achieve.
“Policy support is still needed in order to address concerns around domestic sentiment and housing demand.”
The offshore yuan pared earlier losses and rose 0.1 per cent after the data was released, while the onshore yuan gained 0.2 per cent. The yield on China’s 10-year government bonds climbed one basis point to 2.67 per cent.
The onshore CSI 300 Index trimmed an earlier gain of as much as 1.1 per cent to trade 0.6 per cent higher in the afternoon session, while the Hang Seng China Enterprises Index maintained its morning advance, up 2.9 per cent as of 1:20 pm local time.
Policymakers are taking steps to add stimulus to help the economy, including via an unconventional mid-year budget revision and the approval of 1 trillion yuan ($US138 billion) worth of sovereign bonds for infrastructure investment last month.
Just before the data was released, the People’s Bank of China injected the most cash since 2016 through its medium-term lending facility on Wednesday to support funding for growth. Bloomberg Economics estimates that the additional policy loans will have an impact on markets equivalent to a reserve requirement ratio cut of more than 25 basis points. That’s lowering expectations the central bank would cut that in the coming weeks.
Beijing is also planning to provide at least 1 trillion yuan of low-cost financing to the nation’s urban village renovation and affordable housing programs to help the property market, Bloomberg News reported. The data on Wednesday showed the contractions for China’s home sales and property development investment both deepening in October.
The NBS highlighted the improvement in major indicators in its statement accompanying the data, adding that the economy “operated stably overall.” But it noted ongoing challenges from external uncertainties and insufficient domestic demand, adding that “foundation of the economic rebound still needs to be solidified.”
Some economists cautioned that consumer sentiment was still not on a completely sure footing. October retail sales grew at a similar pace as compared to September on a month-on-month basis, according to Pinpoint Asset Management chief economist Zhang Zhiwei, who added that “domestic demand is still weak.”
“Consumer activities remain a little bit downbeat in China because of the poor consumer sentiment, as well as the negative wealth effect coming from the property market,” BNP Paribas chief China economist Jacqueline Rong said in an interview with Bloomberg TV.
Even so, Ms Rong said the data confirmed that China is “definitely in a mild economic rebound,” adding that growth is on track to overshoot the official target of around 5 per cent for 2023.
For investors and analysts, that means attention is turning to the economy’s real momentum and longer-term perspectives. The persistent property crisis, China’s aging population and low business growth remain serious concerns.
Fiscal policy will “definitely be more expansionary” in the new year, Ms Rong said during the Bloomberg TV interview, noting the central government’s willingness to expand its balance sheet.
“What we need to watch very carefully in 2024 is to what degree the potential expansion in the budget deficit of central government can offset the potential decline in the budget deficit of Chinese local governments, especially considering the overall local debt resolution program definitely involves much tighter fiscal discipline,” she said.
Bloomberg