Recent alternative data and independent surveys show China’s domestic consumption rebound slowed, and private business confidence lost momentum in October, suggesting the recovery isn’t sustainable and additional stimulus measures may be needed to revive domestic demand. Chinese leaders met in July and warned that the Chinese economy is following a zigzag pattern where short growth upturns are followed by downturns.
A report published by the Paris-based QuantCube Technology and an independent survey of Chinese consumer sentiment from the U.S. company Morning Consult showed Chinese consumer demand for recreation and transport fell in October from the previous month. Also, a poll of private business sentiment from the Cheung Kong Graduate School of Business declined last month. Those measures, along with official data showing weak service sector growth and falling consumer prices in October, signal China’s consumption rebound faltered last month, even after the Chinese government announced more fiscal stimulus.
Domestic consumption in China is especially important as official statistics show as it has been the main contributor to demand growth in the Chinese economy this year. Goldman Sachs said, “With PMIs disappointing and exports declining by more than expected, we think economic activity probably softened from September to October.” Meanwhile, some analysts believe the Chinese government will need to keep increasing stimulus measures to attain the government’s 5% GDP growth target for this year. Danske Bank A/S said, “We are looking at a zigzag recovery that needs continued stimulus to keep growth close to the 5% area that the government is aiming for.”
Late last month, the Chinese government announced a 1 trillion yuan ($137 billion) additional government bond issuance for infrastructure. However, the increase in government spending has not led to increased consumer demand. The Golden Week national holiday in October was disappointing as reports show tourist spending per person remained below pre-pandemic levels. Also, retail sales during China’s biggest online shopping festival, which runs from October through November, slowed more than in previous years. QuantCube said, “Despite the government’s latest financial stimulus, our October data indicates a persistent deceleration across all sectors, notably in transportation.”
China’s property sector also shows signs of worsening, which may further dampen consumer confidence and spending. Home sales in 21 major Chinese cities in early November fell 44% from 2019 levels. That’s similar to the pace of contraction in July when the Chinese government started a new round of property easing measures. Nomura Holdings said, “Beijing needs to take stronger action to rescue the property sector and clean up local government debt to secure a more sustainable recovery.”
Some analysts see the possibility that the PBOC this Wednesday could cut the 1-year lending rate by 10 bp from its current level of 2.5%. Union Bancaire Privee said, “Weak inflation and the recent liquidity squeeze call for stronger policy support this week. Frankly speaking, the sooner the better.”
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
