China: Internal and external troubles behind economic recovery
2024-11-18
■ October economic data showed that consumption-related indicators improved significantly, and the rate of decline in real estate prices slowed down
■ Real estate problems began to affect economic activities, and the new US government's China policy may further restrict trade activities
Today, China released several economic indicators, and the October economic data was complete. The total retail sales of consumer goods increased by 4.8% year-on-year, and the service industry production index increased by 6.3% year-on-year, with the growth rate accelerating. However, the cumulative year-on-year growth of fixed asset investment (excluding rural areas) was 3.4%, the same as the growth rate from January to September, and the added value of industrial enterprises above the designated size increased by 5.3% year-on-year, with the growth momentum slowing down. Due to the increase in the number of adjusted days of the National Day holiday in October compared with last year, the total retail sales and service industry production index related to consumer activities improved significantly, while industrial production and fixed asset investment related to corporate activities grew weakly. The recovery trend was maintained in production and investment thanks to the government's policy of promoting the replacement of high-tech products and corporate equipment renewal. Despite this, the consumer price index (CPI) rose by 0.3% year-on-year and fell by 0.3% month-on-month, reflecting that demand for goods and services remained weak. According to data from China's Ministry of Culture and Tourism, domestic tourists' per capita spending increased only slightly during the National Day holiday, indicating that the suppression of household consumption remains strong, raising questions about the sustainability of the domestic demand recovery after November.
Regarding real estate-related indicators, real estate development investment fell by 10.3% year-on-year, a broader decline. In comparison, real estate sales (calculated by floor area) fell by 15.8% year-on-year, a narrower decline. Although residential prices in 70 major cities (calculated by Reuters) still fell year-on-year, with new and second-hand homes falling by 5.9% and 8.9%, respectively, the month-on-month decline narrowed, indicating that specific policy support effects have begun to emerge. However, the improvement in the real estate market is still minimal, with declining transaction volumes and price adjustments continuing, and the negative impact of excess debt expansion, consumption, and investment suppression is gradually being transmitted to economic activities.
Regarding trade data, exports grew by 12.7% year-on-year, the most significant increase since July 2022, while imports fell by 2.3% year-on-year, the first decline in four months. The trade surplus expanded to US$95.72 billion due to the early layout of exports before the US presidential election and the rush to buy Chinese products. With former President Trump, who advocated high tariffs on Chinese products, winning the US presidential election, China's trade activities may be further restricted by correcting trade imbalances and strengthening export controls on essential materials such as cutting-edge semiconductors. Before the new president takes office in January next year, exports and imports are expected to remain strong due to panic buying demand, but weak growth will become more evident by 2025. Domestic and foreign demand will continue to be sluggish, and policy support may further rely on supplementary demand.
■ Real estate problems began to affect economic activities, and the new US government's China policy may further restrict trade activities
Today, China released several economic indicators, and the October economic data was complete. The total retail sales of consumer goods increased by 4.8% year-on-year, and the service industry production index increased by 6.3% year-on-year, with the growth rate accelerating. However, the cumulative year-on-year growth of fixed asset investment (excluding rural areas) was 3.4%, the same as the growth rate from January to September, and the added value of industrial enterprises above the designated size increased by 5.3% year-on-year, with the growth momentum slowing down. Due to the increase in the number of adjusted days of the National Day holiday in October compared with last year, the total retail sales and service industry production index related to consumer activities improved significantly, while industrial production and fixed asset investment related to corporate activities grew weakly. The recovery trend was maintained in production and investment thanks to the government's policy of promoting the replacement of high-tech products and corporate equipment renewal. Despite this, the consumer price index (CPI) rose by 0.3% year-on-year and fell by 0.3% month-on-month, reflecting that demand for goods and services remained weak. According to data from China's Ministry of Culture and Tourism, domestic tourists' per capita spending increased only slightly during the National Day holiday, indicating that the suppression of household consumption remains strong, raising questions about the sustainability of the domestic demand recovery after November.
Regarding real estate-related indicators, real estate development investment fell by 10.3% year-on-year, a broader decline. In comparison, real estate sales (calculated by floor area) fell by 15.8% year-on-year, a narrower decline. Although residential prices in 70 major cities (calculated by Reuters) still fell year-on-year, with new and second-hand homes falling by 5.9% and 8.9%, respectively, the month-on-month decline narrowed, indicating that specific policy support effects have begun to emerge. However, the improvement in the real estate market is still minimal, with declining transaction volumes and price adjustments continuing, and the negative impact of excess debt expansion, consumption, and investment suppression is gradually being transmitted to economic activities.
Regarding trade data, exports grew by 12.7% year-on-year, the most significant increase since July 2022, while imports fell by 2.3% year-on-year, the first decline in four months. The trade surplus expanded to US$95.72 billion due to the early layout of exports before the US presidential election and the rush to buy Chinese products. With former President Trump, who advocated high tariffs on Chinese products, winning the US presidential election, China's trade activities may be further restricted by correcting trade imbalances and strengthening export controls on essential materials such as cutting-edge semiconductors. Before the new president takes office in January next year, exports and imports are expected to remain strong due to panic buying demand, but weak growth will become more evident by 2025. Domestic and foreign demand will continue to be sluggish, and policy support may further rely on supplementary demand.