Last month, industrial output growth accelerated in China, but at the same time, retail sales in this Asian country turned out to be disappointing, amid which calls for Beijing to strengthen measures to stimulate consumer activity increased.
Currently, the Chinese economic system is going through a difficult period. In this case, there is a clear lack of what can be called an upward momentum. In the first quarter of 2024, economic growth in the Asian country was 5.3% year-on-year. In the third quarter, the dynamic of this indicator slowed to 4.6%. China’s economic system, which is the second largest in the world, is facing the impact of such negative factors as a prolonged downturn in the real estate sector, weak domestic consumption, and a drop in investor confidence. Also, after Donald Trump’s victory in the United States presidential election last month, Beijing faced the threat of rising tariffs on goods imported into the US. The implementation of the corresponding intention of Mr. Trump, who will return to the White House next month, will become a factor of sensitive impact on China’s export activities, which is actually the main driving force of the rising dynamic of the Asian country’s economy.
Beijing faces the prospect of significant difficulties in trying to ensure a sustainable recovery of the economic system in 2025. In this context, the most unfavorable scenario for China is the tightening of the tariff policy of the United States and the continuation of weak domestic consumption next year.
According to analysts quoted by the media, Donald Trump may impose tariffs exceeding 60% on goods imported from the Asian country. At the same time, Mr. Trump, at the level of personal rhetoric, has so far announced intentions related to 10% tariffs on products shipped from China. However, this statement does not negate at least the theoretical probability of higher indicators. Analysts suggest that Washington’s tightening tariff policy may be a factor that will force Beijing to accelerate the rebalance of its $19 trillion economy. According to media reports, the Asian country is currently faced with a choice, one of the options of which is the transition from the present model of economic growth focused on exports and fixed-asset investments to a strategy based on consumer activity.
In November, industrial output in China showed an increase of 5.4% year-on-year. The relevant information was published on Monday, December 16, by the National Bureau of Statistics of the Asian country. In October, the mentioned indicator increased by 5.3%. Experts interviewed by the media predicted that the specified rate of upward dynamic of industrial output would continue in November.
Retail sales, a gauge of consumption, in China rose 3% year-on-year last month. It is worth noting that the corresponding rate of upward dynamic is the slowest in three months. In October, retail sales in the Asian country increased by 4.8%. Experts interviewed by the media predicted that the mentioned indicator in November in China will grow by 4.6%. The final result, in a negative sense, largely did not coincide with preliminary expectations.
Dan Wang, a Shanghai-based independent economist, said the Asian country’s economic policies have been surprisingly consistent in promoting manufacturers rather than consumers, despite clear signs of lasting weakness. According to the expert, the mentioned approach contains arguments in favor of expecting a strengthened production capacity in China. Dan Wang also stated that the mentioned process will potentially agitate the overcapacity issue and encourage companies from the Asian country to seek overseas markets.
Fixed asset investments in China grew by 3.3% year-on-year in January-November 2024. At the same time, experts interviewed by the media predicted that the increase in the corresponding indicator would be 3.4%. The mentioned growth rates of fixed asset investments were recorded in the Asian country for the first ten months of the current year.
Xu Tianchen, senior economist at the Economist Intelligence Unit, said that worries about the poor retail sales may be overdone, as it results from an early start of the Double 11 shopping festival which frontloaded sales to October. According to the expert, if the data for October and November will be smoothed by someone, then the growth should average about 3.9%, which is higher than in previous months. At the same time, Xu Tianchen stated that consumer demand in the Asian country is not strong in itself. The expert also noted that the corresponding figure is still very reliant on government subsidies, which contributed about 1.5-2% to monthly retail sales.
After the National Bureau of Statistics published the mentioned data, the Chinese blue-chip index fell by 0.37%. Hong Kong’s Hang Seng Index showed a decrease of 0.57%.
Chinese policymakers have been making more and more statements in recent weeks regarding plans for next year. In this case, the declared intentions regarding the economic development of the Asian country are implied. In the relevant context, all statements mention in one way or another the fact that the January return of Donald Trump to the White House will become a factor of additional burden on the second-largest economy in the world, which is already on a kind of trajectory of weakness, although it does not yet demonstrate what can be called a minimal upward dynamic and does not come close to the edge beyond which the growth ends and the fall begins, the movement along the symbolic road of negative figures.
Last weekend, an official at China’s central bank said that the Asian country’s financial regulator had room to further cut the amount of cash that banks must hold as reserves. At the same time, credit numbers indicate that past easing had a minimal impact on boosting borrowing.
The mentioned situation is partly because Chinese policymakers have yet to find a fix for the long-term crisis in the real estate area, which could potentially become a fundamental process with consequences in the form of structural changes. It is also worth noting that the mentioned crisis has become a factor in the decline in consumer confidence. This dynamic is because in China about 70% of household savings are parked in the real estate sector. The mentioned circumstance explains why the crisis in the area of property is a very sensitive factor affecting the overall state of affairs in the space of the economic system of an Asian country.
In November, new home prices in China showed a decline, which turned out to be the slowest in the last 17 months. These are largely encouraging indicators in the context of looking for any signals about the realism of a hypothetical improvement in the situation in the Asian country’s real estate sector. At the same time, it is currently too early to make statements about recovery in the mentioned sector. The corresponding point of view is shared by analysts interviewed by media representatives.
It is worth noting that during the peak period, the share of the property area in the structure of the economic system of the Asian country was 25%. Stabilization of the situation in this sector is extremely important for Beijing in terms of its desire to maintain the annual target for gross domestic product (GDP) growth at about 5% in 2025. According to media reports, Chinese policy advisors recommend keeping the mentioned indicator.
At the same time, most experts interviewed by journalists predict that economic growth in the Asian country will be 4.5% next year. Also, in their opinion, the tightening of the tariff policy of the United States may decrease the corresponding figure by 1%.
On Monday, Moody’s Ratings released a new version of its forecast for China’s economic growth next year. In this case, the GDP of the Asian country is expected to increase by 4.2% in 2025. The previous version of the forecast provided for growth of the Asian country’s economy by 4%.
Last week at the Central Economic Work Conference (CEWC), a closely-watched agenda-setting meeting, China’s top leaders pledged to increase the budget deficit, issue more debt and make boosting consumption a top priority.
Julian Evans-Pritchard, head of China economics at Capital Economics, suggests that November’s deleration is likely to prove temporary and growth probably to pick up in the coming months as policy support continues to strengthen. At the same time, this expert doubts that incentive measures can deliver anything more than a short-lived improvement. In this context, it was noted that the current high export demand for Chinese products is unlikely to continue, as Donald Trump will begin to implement some of his tariff threats.
