For China, the fourth quarter of the current year began and continues as a period of a more balanced condition of the local economic system, which in recent years has been facing various challenges that have a significant sensitive impact on the situation in the relevant space.
Currently, in the mentioned Asian country, the degree of intensity of consumption growth rates is almost caught up to factory output. For Beijing, which this year, amid significant problems, decided on a package of stimulus measures aimed at reviving the economy, the specified indicators are unequivocally positive news. It is worth noting that for a more intensive upward dynamic economic system in China, recently the main obstacles are a large-scale downturn in the local real estate market, weak consumer activity, and falling investor confidence. All these factors limit the possibilities of growth, which is faster than the current pace of implementation of the corresponding process.
The upward dynamic of the Chinese economy, which is the second largest in the world, this year demonstrates such a tendency, which can be described as a consistent weakening of the momentum of increasing. In the first quarter of 2024, the gross domestic product (GDP) of the Asian country grew by 5.3% year-on-year. In the second quarter, this indicator rose by 4.7%. In the third quarter, China’s GDP grew by 4.6%. The tendency of the dynamic of the corresponding indicator clearly indicates that the engine of the Chinese economy as a symbolic car is gradually losing power. It is also worth noting separately that Beijing still continues to face to a certain extent what can be described as a kind of echo of the coronavirus pandemic, which has become a significant shock factor for the entire global economy.
In October, the economic situation in China showed signs of stabilization. Currently, as noted by the media, citing experts, an important task for Beijing is to deploy the maximum possible number of economic stimulus measures until Donald Trump returns to the White House early next year. In this context, it is worth underscoring separately that Mr. Trump, who won the United States presidential election last week, has repeatedly expressed his intention to raise tariffs on imported goods, including from China. If the appropriate decision is made, China’s economy may face a tariff shock. The implementation of such a scenario will be a factor of sensitive financial damage for Beijing. At a time of weakening growth momentum and several other problems, China’s economic system relies heavily on export activities. In October, shipments of goods from the Asian country showed growth of 12.7% year-on-year. In monetary terms, this figure was fixed at $309 billion. There is a widespread opinion among experts that the significant October growth in Chinese exports is because local factories rushed inventory to the major markets amid the risk of increased tariffs on imports from China.
Last month, retail sales in the Asian country showed the fastest increase rate in the last eight months. The relevant information was released this week by the National Bureau of Statistics of China. It is also worth noting separately that the mentioned dynamic exceeded the preliminary expectations of analysts interviewed by the media.
The increase in industrial production in China slowed slightly in October compared to the pace recorded in September. At the same time, the corresponding indicator remained above the level critically needed to achieve the Asian country government’s goal of economic growth of about 5% in 2024.
The strengthening of consumer activity indicators in China is a kind of encouraging signal after the experience of a lopsided recovery of the local economy, which has still not returned to a high-intensity upward trajectory after the coronavirus pandemic, which in a sense has become a historical space of massive damage. Recently, in the Asian country, spending of households trailed production, held back by sluggish sentiment among shoppers and the private sector.
It is highly likely that after the inauguration of Donald Trump, which will take place in January next year, the growth of domestic consumption will become more relevant for Beijing. Returning to the issue of the potential increase in tariffs from Washington, it is worth noting that the corresponding figure may reach 60%. Donald Trump has repeatedly talked about this probability, meaning in this case, among other things, a significant part of goods imported from China. Whether Beijing will be able to cope with this potential challenge of the foreseeable future is still unknown. From a theoretical point of view, China can partially offset the effects of the tariff shock factor, but it is unlikely that it will be possible to form a situation in its economy that will provide for absolute invulnerability to the mentioned circumstance of external reality. Most likely, in this case, the most correct formulation of the question should focus on the extent to which Beijing will be able to decline financial losses from tariff increases, which still continues to be an assumed scenario, but not an accomplished fact. It is also possible that the tightening of Washington’s tariff policy will have an impact beyond the scope of the Chinese economy.
Jacqueline Rong, chief China economist at BNP Paribas SA, said there are currently signs in an Asian country that policies are intended to rebalance the economy and its growth model. According to the expert, the continuation of the tendency of mild recovery next year depends on which additional policies will be rolled out. Jacqueline Rong also stated that further policy support is needed to maintain the momentum of growth in 2025.
On Friday, November 15, China’s benchmark CSI 300 Index of onshore stocks briefly erased losses. At the same time, this index closed down 1.8% lower. The corresponding result, according to media reports, is evidence that concerns about deepening contradictions between Beijing and Washington turned out to be stronger than the optimistic momentum generated by the October signs of economic stabilization. It is worth noting that the condition of relations between China and the United States is already on a trajectory of consistent deterioration. It is possible that at a certain moment, a line will be crossed, beyond which the fundamental degradation of cooperation between Beijing and Washington will begin. It is worth noting that the present condition of relations between the United States and China is one of the most significant forms of manifestation of the currently observed increase in geopolitical tensions. In this context, it is appropriate to mention that Washington has limited shipments of advanced chips and equipment for the production of microcircuits of the appropriate category to the Asian country. Beijing described these measures as politically motivated and contrary to the principles of free trade, noting that such actions destabilize global industrial and supply chains. Washington has said that the tightening of export controls is aimed at ensuring national security since China can use chips to strengthen its military capabilities.
In Hong Kong, Chinese stocks rose by 0.2% on Friday after falling 0.6%.
It is also worth noting separately that the fall in housing prices has abated in China. At the same time, time is still needed to carry out a digesting of real estate inventory and restore the confidence of developers to a level enough to invest in new projects.
In October,new-home prices in 70 Chinese cities, excluding state-subsidized housing, fell by 0.51% compared to the September indicator. The corresponding figure showed the slowest pace since March. The cost of used homes in the Asian country decreased by 0.48% last month. Currently, this figure is the lowest in more than a year.
After the trading hub of Guangzhou became the first tier-1 city to remove all restrictions on buying residential property, Beijing, Shanghai, and Shenzhen have allowed more people to purchase residences in suburban areas. At the same time, the People’s Bank of China approved the refinancing of existing mortgages worth as much as $5.3 trillion for millions of families. Also, in October, Chinese regulators pledged to nearly double the loan quota for unfinished residential projects to about $550 million. Besides, there are plans to renovate 1 million homes in older, rundown dwellings in large cities.
Investments in infrastructure projects in China continue to be steady. The urban jobless rate in the Asian country is currently the lowest since June.
Raymond Yeung, chief economist for Greater China at Australia & New Zealand Banking Group Ltd., said that amid the potential shock associated with the likely decisions of Donald Trump, China has no choice but to boost domestic spending. The expert also noted that the data for a single month is not enough to confirm a firm rebalancing towards consumption. Besides, Raymond Yeung stated that unlocking household savings is certainly the only way out going forward.
As for the specific indicators signaling the October stabilization in China, in this case, it is worth mentioning that retail sales in the Asian country increased by 4.8% year-on-year last month. Experts interviewed by the media predicted that this figure would increase by 3.8%. October’s retail sales growth turned out to be the strongest since February.
Industrial output in China increased by 5.3% last month. In September, this indicator rose by 5.4%. Economists surveyed by the media predicted that industrial output in the Asian country would increase by 5.6% in October.
Fixed-asset investment in China grew by 3.4% in the first ten months of the current year. At the same time, financial injections into the Asian country’s property sector fell by 10.3% over the mentioned period.
The urban jobless rate in China was fixed at 5% in October. It is worth noting that in September this figure was 5.1%.
China is gradually beginning to observe the materialization of the consequences of the boldest measures to stimulate the economy since the coronavirus pandemic. Beijing is aiming to achieve its economic growth target in 2024.
Also, the authorities of the Asian country thought to spur consumer spending by subsidizing purchases of equipment, appliances, and cars. To implement the relevant intentions, a special program was announced this year, which has been ramped up in the last few months.
Sales of home appliances in China increased by 39% year-on-year in October. It is worth noting that last month this indicator demonstrated such a pace of increase, which is the most intense since 2010. In this case, it excludes January and February numbers that are combined due to distortion from the Lunar New Year holidays.
It is not yet known what measures Beijing is ready to take to tackle deflation. The limit of the actions of the Chinese authorities in an effort to shore up domestic demand is also unknown.
In a statement from the National Bureau of Statistics of the Asian country, it was noted that the external environment is currently becoming more complicated and severe. It was also mentioned in this case that effective demand in China is still weak. Moreover, the National Bureau of Statistics stated that the foundation for continuous economic recovery needs to be strengthened.
Economists Chang Shu and Eric Zhu said the October data signal that China’s overall economic system is bottoming out, but is not yet on a recovery trajectory. In their opinion, the mentioned system will be picking up in the coming months. Economists said that to a large extent, the corresponding dynamic will be related to the expected acceleration in fiscal spending as the government of the Asian country strives to disburse budgeted expenditure.
Against the background of a slowdown in the growth rate of the world’s second-largest economy to the lowest level since the beginning of 2023, the Chinese authorities decided to cut interest rates and support property and stock markets. Beijing also rolled out a $1.4 trillion debt swap program to curb debt risks faced by local authorities and free up fiscal room for them to promote growth.
It’s worth noting that October data, despite signaling signs of stabilization, nevertheless, demonstrate the ambiguous state of affairs in the space of the world’s second-largest economy. Sentiment among manufacturers and service providers has improved. At the same time, inflation remained close to zero. The consumer price index in October in the Asian country increased by 0.3% year-on-year. Credit expansion showed a slowdown that exceeded preliminary expectations regarding the dynamic of the corresponding indicator. It is worth noting that this result reflects tepid domestic demand.
China’s Finance Minister Lan Fo’an has promised a more forceful fiscal policy next year. In this case, there was a hint of an increase in the budget deficit, an expansion of the issuance of special local bonds, and a freer use of the funds raised. He also suggested greater support for the cash-for-clunkers program.
Jacqueline Rong said the infrastructure is likely will remain at the center of state support in China next year. In this context, the expert also noted that the manufacturing sector is currently struggling with excess capacity. Moreover, Jacqueline Rong stated that huge inventory needs to be cut in the Chinese real estate market. Besides, according to the expert, the cash-for-clunkers program is expected to be extended and more subsidies may be granted to the poor.
Michelle Lam, Greater China economist at Societe Generale SA, commenting on the October figures indicating an improvement in the Asian real estate market, said that the main reason for this positive dynamic is the relaxation of purchase restrictions in first-tier cities. The expert separately noted that it remains to be seen how sustainable the sales growth will be and whether the geography of the mentioned improvement will be able to expand. In this context, Michelle Lam also underlined the importance of government destocking support.
It is worth noting that the standard communication strategy of Beijing as a political center in the context of many issues, including the state of affairs in the space of the economic system, is to not discuss in detail the relevant aspects of the country’s existence as a kind of functional environment with many dimensions. At the same time, the fact that the Chinese authorities decided to deploy stimulus measures aimed at reviving the economy is evidence of understanding and recognition of the difficult situation, which requires intervention and efforts aimed at improving the prevailing circumstances. To a certain sense, the world’s second-largest economy is currently faced with the need to prove its ability to develop in difficult conditions. To do this, Beijing should solve internal problems and take measures that minimize, to one degree or another, damage from factors that are components of an unfavorable external environment.
