Navigating Economic Downturn - Fiscal Expansion to Drive Money Creation and Policy Implementation
Date: Nov 20, 2024
In October, the economy experienced a broad-based recovery from the previous month's lows. This improvement was supported by the latest round of macro policies and a favorable shift in export dynamics. Export growth surged due to timing discrepancies, which, in turn, energized the export-linked industries. The push for equipment upgrades and consumer goods trade-ins buoyed manufacturing demand and investment. Infrastructure investment gained momentum as existing policies took effect and new ones accelerated. Real estate saw a lift in transaction volume due to supportive policies, but a sustained recovery will require improving consumer income expectations. To sum up, policymaking is about trade-offs; fiscal expansion is often more effective than monetary expansion in combating economic downturns. It's imperative to swiftly address the bottlenecks in policy implementation and loosen the reins on individuals to boost the economy.
The economy shows a comprehensive improvement from its recent lows. Key economic activity indicators rose in October compared to September. The manufacturing PMI, non-manufacturing business activity index, and the composite PMI output index increased to 50.1%, 50.2%, and 50.8%, respectively, signaling a broad-based economic upturn. All five major sub-indices for the manufacturing sector increased, and the service sector's business activity index ticked up by 0.2 percentage points to 50.1%, propelling the non-manufacturing business activity index higher. Service production surged 6.3% year-on-year, a yearly peak. A stock market trading boom in October drove the financial sector's production index up by 3.7 points to 10.2%, its highest level this year and a key growth driver. This also contributed to a 5.0% year-on-year increase in the national service sector production index for the January–October period.
Shipping schedule shifts spurred faster export growth. The export growth rate for October surged by 9.6 percentage points to 11.2% compared to September. This momentum propelled the year-to-date export growth rate to 6.7% through the month. Bucking the trend of a typical October lull, this year brought a noteworthy 1.8% increase in exports from the previous month, primarily attributed to typhoon disruptions that postponed some of September's exports to October, resulting in an unexpected year-on-year growth. On a country-specific basis, the export growth rates to major destinations rebounded.
Exports and policies keep industrial growth steady. From January to October, the value-added output of industrial enterprises above designated size rose by 5.8% year-on-year, unchanged from the first nine months. The manufacturing and mining sectors saw a pickup in production, while the utilities sector's growth eased to 5.4%. A resurgence in domestic demand improved the sales-to-production ratio, while the value of exports rose by 3.7% year-on-year. Policies on equipment renewal and consumer goods took effect: car production swung from negative to positive, and the output of new energy vehicles reached a record high. Production of charging piles surged by 25.2%, and industries such as smart consumer devices, shipbuilding, and battery manufacturing have shown substantial value-added growth. The production volumes of agricultural processing, excavating machinery, packaging equipment, and home electric heating appliances have all sustained double-digit growth rates.
Policy efforts keep investment growth on an even keel. From January to October, investment climbed 3.4% year-on-year, matching the pace set during the first nine months. The monthly manufacturing investment growth rate hit 9.9% thanks to large-scale equipment renewals, innovation, and industrial upgrading. Industry-wise, investment accelerated in sectors such as other transportation equipment, non-ferrous metals, food manufacturing, and chemicals. Infrastructure investment also accelerated year-on-year to 4.3%, the first increase since March. The real estate market experienced increased transaction activity, with the year-on-year decline in new commercial housing sales area and sales volume for January to October easing by 1.3 and 1.8 percentage points, respectively, compared to the January–September period. However, such improvement has not yet fed into increased investment.
Policies gave a marginal boost to consumption growth. In October, programs such as consumer goods trade-ins and the "Double 11" shopping spree fueled the year-on-year growth in retail sales, which climbed to 4.8%, up from September. Commodity retail sales growth reached 5%, driven by accelerated sales in home appliances, audio-visual equipment, cultural and office supplies, furniture, and automobiles at retail units above a certain threshold. Necessity consumption remained stable, and discretionary consumption showed modest gains. Auto retail experienced significant recovery, and the real estate chain surged, with the decline in retail sales of building and decoration materials narrowing. As a series of stimulus policies are gradually implemented and service supply is optimized, combined with holiday buzz, service spending is on a fast track.
Active regulation is steering prices towards stability. International crude oil prices dipped due to geopolitical factors, which, in turn, lowered prices in China's oil-related industries. Nevertheless, new policies appear to have revived demand for certain industrial goods, helping to curb the Producer Price Index's (PPI) monthly slide, which shrank by 0.5 percentage points month-on-month. Equipment manufacturing saw price drops due to global economic shifts and domestic sales promotion, slightly widening the PPI's year-on-year decline by 0.1 percentage point. Consumer Price Index (CPI) gains were modest in October, ticking up 0.3% year-on-year, a sign of stable prices overall. Non-food prices declined further by 0.1 percentage points, reflecting market dynamics, while food prices eased back to a 2.9% gain but continued trending upward.
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…
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.
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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
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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
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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,…