China's Economic Recovery Shows Mixed Signals

October's economic data from China paints a mixed picture, with retail and industrial sectors showing growth, while the property sector and fixed-asset investments lag.

China's Economic Recovery Shows Mixed Signals

China's retail sales and industrial output in October surpassed expectations, signaling potential positive shifts in its economic landscape. Retail sales expanded by 7.6% year-on-year, outperforming the forecast 7% growth. This marked an increase from September's 5.5% rise. Industrial production also saw a boost, growing 4.6%, slightly above the anticipated 4.4%. This growth, the highest since April, suggests a gradual recovery from the stringent zero-Covid policy impacts of the previous year.

China’s Economy Plunges Back Into Deflation
China’s economy reenters deflation, with a notable decline in pork prices impacting consumer price indices and challenging domestic demand recovery efforts.

Challenges In Property And Investment Sectors

However, the overall economic picture remains complex. Fixed-asset investment, a critical growth driver, grew only 2.9% in the year to October, falling short of expectations and the previous month's 3.1% increase. China’s National Bureau of Statistics acknowledged the inadequacy of domestic demand and low market demand for manufacturers. This mixed performance is further complicated by the property sector's continued struggles, with sales by floor area declining by 7.8% in October.

Property Sector Under Pressure

China's real estate sector, burdened by debt and defaults, has not shown signs of recovery. The default of Country Garden, a major private developer, has exacerbated the situation. Despite efforts to revive the sector, including interest rate cuts and easing purchase restrictions, direct bailouts have been avoided. Local governments have been encouraged to support developers with liquidity for incomplete projects.

Stock image of China high-rise property
China's real estate sector: not always higher, bigger, faster (Photo: Qilai Shen)

Outlook And Consumer Behavior

The International Monetary Fund (IMF) recently revised China's growth forecast upwards to 5.4%, partly attributing this to policy support for the property market. However, indicators of consumer confidence remain fragile. The Singles’ Day shopping festival, a significant consumer event, saw its weakest growth since records began, with sales increasing only 2.1% to RMB 1.14 trillion.

In summary, while China's retail and industrial sectors show signs of recovery, the overall economic outlook remains mixed due to ongoing challenges in property and fixed-asset investment. Consumer confidence and the performance of the real estate sector will be crucial factors in determining the trajectory of China's economic recovery.

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