Limited and Highly Targeted Stimulus is Likely an Attempt to Boost Some Sectors
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Economy Watch | China

Monthly updates on the state of the economy in China

Limited and Highly Targeted Stimulus is Likely an Attempt to Boost Some Sectors

November 30, 2023

Trusted Insights for What's Ahead™

  • Status of China’s Economy – The Chinese economy is showing signs of weakness going into Q4, both on its supply and demand sides. This is in line with our view that the stronger-than-expected growth in Q3 was driven by a short-lived release of pent-up demand, and thus not indicative of a broader recovery in confidence levels. While support has accelerated, it has not yet proven sufficient to bring about a broad turnaround. This is unlikely to change due to the government’s commitment to preventing systemic risks, which limits the extent of stimulus it can deploy.
  • Investment Trends – Fixed asset investment growth stayed relatively stable in October, but there is a continued downward trend. It went down from 3.1 percent y-o-y in Jan-Sep to 2.9 percent in Jan-Oct. The front loading of local government bonds issuance has been a key driver of infrastructure investment; and while most of this year’s local government bond quota has been used, the government has issued more support, specifically a RMB 1.5 trillion local government debt swap program and RMB 1 trillion special government bond issuance. This will support growth in infrastructure and manufacturing investment, but the continued contraction in property investment will be a major drag on the economy overall.
  • Consumption Trends – October retail sales went up by 7.6 percent y-o-y, up from 5.5 percent in September. This was on the back of a very low base in October 2022, when y-o-y growth dropped to -0.5 percent. Despite seemingly positive data month-to-month, the growth momentum in consumption is actually moderating. Looking ahead, Q4 headline growth will continue to look deceptively strong thanks to last year’s low base. 
  • Trade Trends – Despite a favorable base effect, export growth contracted further in October, dropping -6.4 percent y-o-y, down from -6.2 percent in September. The manufacturing PMI’s new export orders sub-index remained below the 50-mark, suggesting that export growth will continue weakening. Because of the global economic slowdown and heightened geopolitical risk, we continue to see little short-term upside for exports.
  • Implications for Business – As expected, the Chinese economy weakened in October. It seems increasingly likely that the government will roll out a second batch of small, targeted stimulus measures in the coming months, which will help support growth in Q4. However, we believe this won’t be sufficient to generate an upcycle. Achieving a recovery in business and consumer confidence levels will be a protracted process. MNCs will continue operating in an environment of softening demand, making it more challenging for them to defend their market shares.

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