How is China’s economy faring?
A short-lived reopening bounce:
China lifted its Covid-19 restrictions towards the end of 2022 and in early 2023. However, the consequent boost to activity did not last long, with quarter-on-quarter GDP growth slowing to 0.8% in Q2 from 2.2% in Q1. Moreover, following a brief uptick earlier in the year, house prices fell sequentially for three straight months from June. Other real-estate indicators deteriorated in tandem. And goods exports have been shrinking since May, dragged down by trade tensions and soft demand in the West.
Discontinued data series muddy the economic picture:
The number of data series published by the National Bureau of Statistics (NBS) is now a fraction of the amount available a decade ago. According to FT analysis, there were over 80,000 indicators reported annually in the early 2010s; by 2020, that number had fallen to below 40,000, and has likely dropped further since then. The latest high-profile casualties are consumer confidence and youth unemployment, with the latter release canned by the NBS in August this year after hitting repeated record highs. Though less data makes it harder to glean a clear picture of how the economy is doing, it appears safe to say that China’s economy has lost momentum since Q1.
All eyes on stimulus:
The government has announced incremental stimulus in recent months, including trimming interest rates and reserve requirements, and reducing mortgage rates and down payments. But anyone hoping for a stimulus “bazooka” has been disappointed, and further sector-specific policies are likely to remain the tonic going forward. The government is keen to shift the country’s economic model away from property and traditional infrastructure investment, which rules out a major spending splurge in those areas. Beijing also appears concerned about denting citizens’ work ethic if it offers direct fiscal handouts to individuals. Worries over corruption and the country’s massive debt pile—the IMF’s broad definition of public debt is forecast to reach over 120% this year—are likely further factors making the authorities reluctant to spend big.
Our forecasts:
There were tentative signs that recent stimulus was working in August; in the month, retail sales, exports, credit and industrial production data all overshot markets’ (albeit downbeat) expectations. The Consensus among our panelists is that China’s economy will expand 5.1% this year, down from the 5.5% panelist projection from June. Growth is seen slowing to 4.5% next year. Even if the government succeeds in reviving economic sentiment and stabilizing the property sector, more underlying factors such as a declining population and reduced private-sector dynamism will continue to weigh on economic prospects.
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Insights from our analysts
On the long-term economic outlook, EIU analysts said:
“Growth will decelerate further in 2025-27. Property will remain a major source of headwinds in the medium term, with ripple effects being felt widely across industries including development, construction, property services, home appliances, furniture and financial services, and groups including homeowners and migrant workers. In the long term, demographic issues will be a major constraint, especially as the working-age population starts to shrink.”
On August data and its implications, Nomura analysts said:
“Some may be of the view that China’s economy has already bottomed out, but we remain cautious for the following reasons. First, the rise in retail sales might be mainly driven by higher energy prices and the release of pent-up summer travel demand, which has now started to weaken again. Second, IP growth may still face headwinds due to the contraction of exports and property investment (at -10.9% y-o-y in August, up only slightly from -12.2% in July). We believe that the recent raft of supportive measures in the property sector may not be enough to turn things around, and Beijing still needs to ramp up policy support to deliver a more sustainable recovery.”
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