Reversing Economic Downward Spiral, Swift and Targeted Action Needed
Date: October 20, 2024
During the first three quarters of 2024, a slowdown in overseas demand and increasing uncertainties contributed to a deceleration in year-on-year export growth compared to the first half of the year. Nonetheless, exports continued to drive the development of related industries within the industrial supply chain. The demand and investment in manufacturing were bolstered by policies encouraging large-scale equipment renewals and consumer trade-ins for new products. Additionally, the pace of implementation of infrastructure project reserves increased. Despite existing challenges, China's economic growth rate of 4.8% during the first three quarters still ranks among the top globally. Yet, insufficient demand remains the most significant challenge. This is further exacerbated by the negative growth in public budget revenues and an increased decline in M1 money supply, together signaling a persistent negative economic spiral. To break this cycle and foster a refined economic structure, it is imperative to swiftly implement "macro-micro easing" policies.
Economic factors contributing to an upward economic trend are on the rise. In the first three quarters, the GDP grew by 4.8% year-on-year, a slight deceleration of 0.2 percentage points from the first half of the year. The GDP for the third quarter alone increased by 4.6% year-on-year, marking a 0.1 percentage point decrease from the second quarter. The primary, secondary, and tertiary sectors experienced year-on-year growth rates of 3.2%, 4.6%, and 4.8%, respectively. The manufacturing PMI rebounded to 49.8% in September, with the production index increasing above the critical point for the first time in a month. Concurrent with these trends, the Chinese economy has exhibited several positive developments during the first three quarters. These include the high-tech manufacturing sector consistently outpacing the overall industrial growth rate, a noteworthy pickup in the growth of the service industry, and a steadying growth rate among real estate development investments. These encouraging signs indicate an underlying resilience and dynamism within the economy, suggesting that it remains on a steady course despite broader economic challenges.
A multitude of factors influenced the growth rate of exports. In the first three quarters, exports increased by 6.2% year-on-year, a deceleration of 0.7 percentage points compared with the first half of the year. This trend continued into September, when exports only increased by 1.6% year-on-year, the smallest increase since February 2024. The ongoing decline in the global manufacturing PMI has had a ripple effect, decreasing new export orders to 47.5% in September. Additionally, the above-average number of intense typhoons has further disrupted export shipping activities, exacerbating this situation. Overseas uncertainties, including ongoing trade frictions and the unpredictability of the US election, coupled with negotiations with American dockworkers on the East Coast, have advanced the peak season's arrival. Furthermore, the EU's implementation of anti-subsidy tariffs has led to a cumulative 0.5 percentage point decrease in overall exports compared to the previous month.
Exports supported the stability of related industries. During the first three quarters, the output of industrial enterprises above the designated size increased by 5.8% year-on-year, a rate consistent with the January-August period. It then showed a slight deceleration of 0.2 percentage points from the first half of the year. Additionally, the manufacturing sector saw its growth ease to 6.0%. After four consecutive months of decline, the year-on-year growth rate for industrial enterprises above the designated size rebounded to 5.4% in September. The effect of exports on industrial growth is notable, with the export delivery value of industrial enterprises above the designated size increasing by 4.1% year-on-year during the first three quarters, showing an accelerating trend quarter by quarter. This has spurred significant double-digit year-on-year growth in the export delivery values for export-related manufacturing sectors, such as the automotive, metal products, railway, shipbuilding, aerospace, and aviation industries.
The foundation for an upward trend in investment requires further strengthening. During the first three quarters, the year-on-year growth of total investment was 3.4%, easing by 0.5 percentage points from the first half. Within this change, manufacturing investment saw a year-on-year increase to 9.2%, infrastructure investment slowed to 4.1%, and real estate development investment shrank by 10.1%. In September, investment rebounded with a year-on-year increase of 3.4%, with all three main categories showing higher growth rates than in the previous month, signaling a marginal improvement in investment momentum. Manufacturing investment for September rose by 9.7% year-on-year, with notable acceleration in the textile, general equipment, agricultural and sideline food products, and pharmaceutical manufacturing industries, increasing by 6.3, 7.4, 7.7, and 7.2 percentage points, respectively, compared to the previous month. The other transportation equipment sector saw a substantial year-on-year increase of 37.9%. Infrastructure investment, supported by intensified fiscal measures and faster policy implementation, showed a significant rebound, with all sectors posting higher year-on-year growth rates than in the previous month. The cumulative year-on-year growth of infrastructure investment, including electricity, increased by 1.4 percentage points compared to the previous month, indicating that power sector investment was a key driver in the infrastructure rebound.
Overall consumer spending growth has been weakening amidst fluctuations. Consumer spending growth has been fluctuating and generally weakening. For the first three quarters, the year-on-year increase in total retail sales was 3.3%, a 0.4 percentage point reduction from the first half of the year. In September, the growth rate of total retail sales increased to 3.2%, influenced by the effectiveness of trade-in policies and a low comparative base from the previous year. Commodity retail sales saw a year-on-year increase of 3.3%, with sales by larger retailers increasing by 2.8%, indicating a return to positive growth. Essential and discretionary consumer spending remained robust, while the real estate-related consumption chain saw a notable recovery. Localized efforts to enhance trade-in policies have boosted sales of automobiles, home appliances, and related products. However, service consumption showed signs of weakening. From January to September, the cumulative year-on-year growth rate of service retail sales slowed to 6.7% compared to the January–August period, and the year-on-year growth rate of catering income fell to 3.1% in September.
The Producer Price Index (PPI) is anticipated to decrease further in its year-on-year decline. For the first three quarters, the PPI decreased by 2.0% year-on-year, which is a slight improvement of 0.1 percentage points from the first half. In September alone, the PPI decreased by 2.8% year-on-year, a worsening of 1.0 percentage point from August. International factors have led to a slowdown in price increases for industries associated with oil and non-ferrous metals. The real estate market continues to adjust, and prices in related industries such as steel and cement have been weak. Meanwhile, the Consumer Price Index (CPI) for the first three quarters increased by 0.3% year-on-year, expanding by 0.2 percentage points from the first half. This was mainly due to increases in non-food prices. With additional policies pending and the gradual implementation of existing measures, the PPI's upward momentum is expected to regain strength. This could lead to further narrowing of the PPI's year-on-year decline, not only in October but also throughout the fourth quarter.
Heightened Vigilance Required Against Economic Downward Spiral
Date: August 20, 2024
Export growth recovered in August, and policy support bolstered manufacturing investment. However, growth in infrastructure investment and physical work volume were supressed. As real estate policies have been implemented, more measures are expected to boost market confidence. Consumer spending growth has slowed, with industrial and consumer goods prices remaining low. Public budget revenues and monthly consumption in top-tier cities fell, the decline in M1 money supply widened, and urban surveyed unemployment rates rose beyond seasonal patterns—all pointing to…
The Momentum for Economic Recovery Still Needs to be Strengthened, and Incentives for All Entities Need Improving
Date: August 20, 2024
In July, export growth slowed compared to the previous month amid global manufacturing volatility and increasing international uncertainties. Local infrastructure development remained sluggish, and the real estate sector continued to struggle. Although consumer spending saw a modest increase, its sustainability remains uncertain. Industrial product prices continued to fall and consumer prices stayed low. These challenges were further underscored by negative growth in public budget revenue, lower monthly consumption in first-tier cities, and a decrease in M1 money…
Economy Continued to Expand Amidst Growing Pressure, Further Policy Needed to Boost Expectations
Date: Jul 20, 2024
In the first half of 2024, export growth accelerated due to global manufacturing recovery, and consumer goods sales remained steady thanks to supportive policies and other factors. However, the sustained decline in industrial product prices and the persistently low consumer prices suggest that demand remains relatively weak. The real estate market remains sluggish, overall societal expectations are still low, and businesses are under significant operational pressure. To turn the tide, it's crucial for policies to be significantly ramped up as soon as possible to improve…
Policies and External Demand Boost Economic Improvement
Date: Apr 20, 2024
In the first quarter of 2024, the economy improved overall due to the combined effect of recovering external demand, the sustained impact of earlier policies, the timing of the Spring Festival, and changes in base figures. Major macroeconomic indicators remained generally stable, but data for March showed signs of marginal weakening compared to January and February. This weakening is partly due to the base effect but also requires close attention, indicating the need for sustained policy efforts.
Policies, among other factors, have contributed to the overall economic…
Economic Performances Fell Back, Policy Support Still Needed
Date: November 20, 2023
In October, China's economy may not appear to gain a strong recovery. However, a rational look at the situation shows there is some potential amid the current difficulties. Weakness in overseas manufacturing led to a decline in exports, impacting relevant industrial chains. Infrastructure and real estate investments remained weak, while manufacturing investment stayed stable owing to policy support and shifting demands. Supported by holiday promotions and a resurgence in service consumption, overall consumption remained resilient, although certain consumer goods…
Treat Recovery Data with Caution
Date: Feb 27, 2023
Because of Chinese New Year, the statistics bureau didn’t announce price, financial and PMI data until February. China switched from zero-COVID lockdown to almost no restrictions in December 2022, and by January 2023, normal life had nearly returned. The economy is generally improving, but caution about its sustainability is required.
Manufacturing PMI, the non-manufacturing business index and the composite PMI production index were 50.1%, 54.4%, and 52.9% in January 2023, up 3.1, 12.8, and 10.3 pps from December. All rose to the improvement zone, showing that the…
Back on Track in 2023
Date: Jan 29, 2023
GDP grew 3% in 2022. Specifically, China’s economy rose by 2.9% y/y in Q4 2022, down from the 3.9% growth reported in Q3. Many negative factors affected the economy in 2022, including global macroeconomic tightening, the Ukraine crisis, real estate restructuring, the pandemic management policies and so forth. As some of the above factors abated, particularly abolishment of the zero-COVID policy, we expect that, after a turbulent 2022, the economy will be back on track in 2023.
Industrial output grew 3.6% in 2022, down 6 pps from 2021. Investment rose 5.1%, up 0.2 pps,…
Recovery Is Constrained By Covid, Again
Date: Nov 24, 2022
Growth is weakly recovering, with pressure ahead largely from the Covid prevention and its related lockdowns. Although there was some rumor regarding abandoning the zero-Covid policy, there were also signs that China will commit to this policy in the short term, citing reasons from state media that China’s per capita medical resource is low. We forecast that although there might be some relaxing adjustment, for example that foreign entry has reduced to five-day quarantine from seven days, the zero-Covid policy will not be abandoned soon.
In January-October, industrial…
Recovery Slows Amid Weakening Global Economy
Growth strengthened, but only slightly. In August, industrial output rose 4.2% y/y, up 0.4 pps, lifting overall January-August growth to 3.6%, up 0.1 pps. Investment rose 5.8% y/y in January-August, up 0.1 pps. The August growth rate was 6.4% y/y, up 2.8 pps. Real estate investment growth rate fell further, to -13.8% y/y, down 1.7 pps from August 2021.
In August 2022, consumption rose 5.5% y/y, up 2.7 pps. This is partly due to the low base number of last year, when consumption rose 2.5%, and was down 6 pps from August 2021.
Exports rose 11.8% y/y, down 12.1 pps from July 2022. This seems…
Real Estate Cooling Drags Economic Recovery
Industrial output grew 3.5% y/y in January-July, up 0.1 pps from H1. In January-July, investment rose 5.7% y/y, down 0.4 pps from H1. In particular, the investment growth rate in July was down 2.4 pps from June. High infrastructure investment has been flattened by reduced real estate investment.
Retail sales of social consumption goods fell -0.2% y/y in January-July, up 0.5 pps from January-June. Exports were still strong. In July, exports rose 23.9% y/y, up 1.9 pps from June. Due to the stop of global monetary policy easing, the continuing Ukraine crisis, and the ongoing pandemic, other…
Recovering from the Lockdowns
GDP only grew 2.5% y/y in H1. As the pandemic shock has been gradually under control and the start of various economic stabilization policies, the recovery growth in June has lifted the Q2 growth to achieve positive growth at 0.4% y/y, contributing to the path “back to normal”.
In H1, industrial output rose 3.4% y/y, down 3.1 pps from Q1. In H1, investment growth rate was 6.1% y/y, down 3.2 pps from Q1, but still 1.2 pps faster than 2021. The continuing real estate cooling does not see any time ending.
Pandemic lockdowns suppressed consumption. Retail sales of social consumption goods fell…
Signs of monetary and fiscal expansion at last
Because of the long Chinese New Year holiday, the statistics bureau only announced price, financial and PMI data in February. Producer prices grew more slowly. PPI rose 9.1% y/y, down another 1.2 pps from December. The ex-factory price index of industrial goods rose 8.85% y/y, while CPI growth also slowed. CPI rose 0.9% y/y in January, down 0.6 pps from December. In particular, food prices fell -3.8% y/y, down 2.6 pps from December, dragging CPI down 0.72 pps. That is the leading factor lowering CPI. The falling price levels offer ample room for further money expansion.
At the end of…
Lockdown Halts Powerful Economic Recovery
The COVID-19 lockdowns in Shanghai and some other cities since late March have halted the strong economic recovery. In Q1, GDP was up 4.8% y/y, up 0.8 pps from Q4 2021, but 0.2 pps lower than in Q1 2020. Industrial output rose 6.5% in Q1, up
2.6 ppts from Q4, but down 1 pps from January-February. Investment rose 9.3% y/y in Q1, up 4.4 pps from 2021, but 2.9 pps lower than in January-February.
In March, overall PMI, manufacturing PMI, and non-manufacturing business activity PMI were 48.8%, 49.5% and 48.4% respectively, all falling steeply from the previous month, demonstrating that the…
Signs of monetary and fiscal expansion at last
Executive summary
Because of the long Chinese New Year holiday, the statistics bureau only announced price, financial and PMI data in February. Producer prices grew more slowly. PPI rose 9.1% y/y, down another 1.2 pps from December. The ex-factory price index of industrial goods rose 8.85% y/y, while CPI growth also slowed. CPI rose 0.9% y/y in January, down 0.6 pps from December. In particular, food prices fell -3.8% y/y, down 2.6 pps from December, dragging CPI down 0.72 pps. That is the leading factor lowering CPI. The falling price levels offer ample room for further money expansion.
At…
Yuan may appreciate further in 2022, but not hit 6 to the dollar
Growth continues to be weak. In November, industrial output grew 3.8% y/y, down 1.1 pps from Q3, much lower than the growth rates of recent years. Investment is also low, and was up 7.9% y/y, and down 1.2 pps from January-June. Its adjusted growth rate is instead negative. The real estate market is still cold: sales were down -14.2% y/y in November.
Consumption rose 3.9% y/y in November, down 1 pps from October, and its adjusted growth rate was 0.5% y/y, hitting its lowest level this year. But trade is still strong. Imports were up 26% y/y, and up 9.8 pps from Q3. Exports were up16.6% y/y.
…
Growth weakens, though more structural reforms are underway
Growth has weakened, especially in services. In August, industrial output grew 5.3% y/y, and was up 11.2% from August 2019, with an annualized growth rate of 5.4%, down 0.2 ppts from July, and down 1.2 ppts from Q2. The service production index has slowed since Q2, and grew only 4.8% y/y in August, after being further hit by the COVID outbreaks, down 2.9 ppts from Q4 2020, and down 2.1 ppts from 2019.
Investment was up 8.9% y/y January-August, and increased 8% from August 2019, with an annualized growth rate of 4%, down 0.5 ppt from H1. Real estate is cooling dramatically, to the 2008…
Growth may be slower
The Chinese economy has been stably rising in Q2. GDP was up 7.9% y/y, and up 11.4% from Q2 2019, with an annualized growth rate of 5.5%, up 0.5 pps from Q1. Industrial output was up 8.9% y/y, and up 13.7% from Q2 2019, with an annualized growth rate of 6.6% y/y, slightly lower than in Q1 but higher than the pre-pandemic 2019 level; specifically, growth in June was 6.5%.
Investment was up 12.6% y/y, and increased 9.1% from Q2 2019, with an annualized growth rate of 4.4% y/y, up 1.8 pps from Q1, and down 1 pps from 2019. In Q2, retail sales of social consumption goods were up 9.5% from Q2…
Stronger yuan against a weak dollar
Growth was stable in May. Industrial output rose 8.8% y/y, and increased 13.6% from May 2019, with an annualized growth rate of 6.6%. Investment rose 15.4% y/y, and increased 8.5% from May 2019, with an annualized growth rate of 4.2% y/y -- still in a low growth zone.
Consumption has recovered further. In May, retail sales of social consumption goods rose 9.3% y/y from May 2019, with an annualized growth rate of 4.5%, up 0.2 pps from April. Trade has been strong since the beginning of this year, especially for imports, which are growing robustly. In May, imports rose 39.5% y/y. Exports rose…
Robust growth without monetary loosening
Growth is stable. Industrial output was up 9.8% y/y in April, and up 14.1% y/y from April 2019, with annualized growth of 6.8% y/y, the same as in Q1, and higher than the pre-pandemic levels in 2018 and 2019. Investment is still weak, and rose 8% y/y from April 2019, with an annualized growth rate of 3.9% y/y, up 1.3 pps from Q1. We expect economic growth to be strong, though fiscal and monetary policy are not loosening. Our forecast is based on strong trade growth from global economic recovery, commodity price appreciation and demand recovery.
Consumption recovered slowly. In April,…
Import rally
GDP was up 18.3% y/y in Q1, and up 10.3% from Q1 2019, with an annualized growth rate of around 5%. In this report, we mostly use Q1 2019 as the benchmark period, because the major shock from the pandemic in February 2020 makes Q1 2020 data hardly comparable. The adjusted growth rate was lower than in Q4 2020, and higher than in Q3 2020, and can be viewed as stable.
In Q1 2021, industrial output was up 14% y/y from Q1 2019, with annualized growth of 6.8%, slightly lower than in Q4 2020. In particular, industrial growth in March reached 12.8% y/y, with an annualized growth rate of 6.2% y/y,…