Signs of consolidated recovery - 2024-11-25
Strong start to Q4
We estimate China's growth increased by 0.4 percentage point to 5.3 percent year-on-year in October, based on China's official monthly data release. It was largely driven by an improvement in domestic demand on the back of recent policy stimulus measures. Retail sales growth rebounded to 4.8 percent year-on-year, up 1.6 percentage points, thanks to a surge in home appliances, furniture and car sales with help from the government's cash subsidies. Service sector growth also improved to 6.3 percent year-on-year, up 1.1 percentage points; property sales have recovered despite further price drops, and financial services activity has been boosted by monetary and capital market easing measures. Meanwhile, industrial production and fixed asset investment growth were both flat from last month, suggesting the government is prioritizing domestic consumer demand, an approach different from in the past.
Our expectation is for 5 percent growth in the fourth quarter and 4.9 percent annually in 2024, and we see upside risks if the upward momentum is sustained through year-end. Although the government's recent fiscal announcement fell short of market expectations, we think it has sufficient room to keep fiscal spending expansionary through the fourth quarter. Meanwhile, it has room for further property policy, including cutting property transaction taxes and expanding the scope of urban renewal projects to 300 cities, to sustain the property sector recovery.
October's economic activity showed further improvement, particularly in retail sales, services, and housing, boosted by recently implemented stimulus measures.
Industrial production decelerated slightly by 0.1 percentage point to 5.3 percent year-on-year. Production slowed in mid-stream industries, such as machinery and metal manufacturing, where growth fell by 1-2 percentage points year-on-year. In contrast, auto manufacturing output improved by 1.6 percentage points, likely fueled by the trade-in program. Export delivery values rebounded slightly by 0.3 percentage point to 3.7 percent year-on-year, as exports activities recovered from typhoon disruptions.
Services output improved by 1.2 percentage points to 6.3 percent year-on-year, marking the highest level this year. The largest improvement was the financial services industry, whose output increased by 3.7 percentage points to 10.2 percent year-on-year thanks to the central bank's monetary easing and increased capital market activity since late September. Services related to the property market also seem to have rebounded considerably, thanks to improved market sentiment and sales.
Retail sales rose by 1.6 percentage points to 4.8 percent year-on-year, primarily driven by the front-loaded online sales events and further utilization of the consumer goods trade-in program. Major online platforms started sales/pre-sales 8-13 days earlier than last year for this year's Double 11 online sales event, and the contribution of online sales to overall retail sales growth rose by 3.3 percentage points. Non-online sales also improved and contributed 1.5 percentage points to overall sales. Sales of home appliances, sports and recreational goods, cultural and office supplies, and communication devices all recorded high double-digit year-on-year growth: 39 percent, 27 percent, 18 percent and 14 percent, respectively. Automobile sales also improved by 3.3 percentage points to 3.7 percent year-on-year.
Fixed asset investment held steady at 3.4 percent year-on-year. Infrastructure investment improved by 3.6 percentage points to 5.8 percent year-on-year, the highest level since April. Manufacturing investment also saw a mild improvement of 0.3 percentage point to 10 percent year-on-year.
The author is Xiong Yi, Deutsche Bank's chief China economist.
China's Q4 GDP growth expected to rise
Supported by China's ultra-long special government bonds funding the "cash for clunkers" automobile trade-in program, improved new home sales, triggered a rebound in exports, and increased stock market activity, we have raised our Q4 GDP growth forecast from 4.4 percent to 4.9 percent year-on-year.
Additionally, reflecting the delayed effects of earlier stimulus measures and policy adjustments since Sept 24, we now project full-year GDP growth for 2024 at 4.8 percent, up from 4.7 percent.
However, this recovery may prove brief. Despite the September policy shift, Beijing has yet to implement concrete fiscal stimulus measures beyond the debt swap program. Moreover, risks loom, including potential 60 percent tariffs on Chinese goods proposed by the incoming administration in the United States.
We maintain our 2025 GDP growth forecast at 4.0 percent, anticipating sequential growth to dip again in the first quarter. This could prompt stronger fiscal measures after the National People's Congress in March 2025.
The "cash for clunkers" initiative and subsidies for home appliances have significantly lifted sales. Growth of retail sales jumped to 4.8 percent year-on-year in October from 3.2 percent in September, beating market expectations at 3.8 percent.
Given the program's sustained impact and favorable base effects in November and December, we expect retail sales growth in Q4 to rebound further from Q3.
In response to persistently weak consumption, the central government pledged a new round of large-scale equipment renewal and consumer goods trade-in programs. These measures, which gained traction in October, reflect Beijing's shift from investment-driven to consumption-driven stimulus. The trade-in program is poised to remain a key driver of consumption in the coming months.
New home sales turned positive in June 2023, and pent-up demand appears to have extended into November.
We forecast a strong rebound in Q4 new home sales compared to Q3. However, we remain cautious about the sector's outlook. While Beijing has introduced easing policies and pledged to stabilize the property market, progress on concrete fiscal measures has been slow.
Severe delays in container shipments from Shanghai and Ningbo Beilun ports in September, caused by Typhoon Bebinca, pushed significant export volumes into October. While this shift has minimal impact on total exports for the two months combined, it necessitates adjustments between Q3 and Q4 growth figures.
Additionally, with the next US administration proposing 60 percent tariff on Chinese goods, substantial front-loading of exports to the US is expected starting in December.
Considering stronger-than-expected October export data and anticipated front-loading, we have revised our Q4 export growth forecast from 6.0 percent to 8.5 percent year-on-year.
The author is Lu Ting, Chief China Economist at Nomura.
Source: China Daily
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