China’s growth momentum continued to improve in October

December 02, 2024

China's economic growth gained further momentum in October, following a marginal improvement in September. Key indicators, retail sales, exports, and the manufacturing purchasing manager’s index accelerated, while industrial production and investment growth remained stable. However, the property sector is still struggling to turn around and consumer confidence remains low. The sustainability of the recent growth momentum remains in question. The stimulus measures announced in late September will support growth, but a large part of it will only be felt in 2025. Moreover, what is really needed for a sustainable growth rebound are significant structural reforms, which will take time to yield results; as such, we expect the market to continue being characterized by weak spending and intense price-based competition.

Trusted Insights for What’s Ahead™

• Status of China’s Economy: Growth momentum continued to improve in October
  October saw continued improvement in production and consumption data, driven by fiscal stimulus and supportive measures like the consumer trade-in and equipment upgrading programs. The government decided to intensify fiscal and monetary support in late September but given persistent weakness in domestic demand, the ongoing property downturn, and policy holdups, we maintain our GDP forecast for 2024 at 4.8%.
• Investment Trends: Manufacturing remains robust, infrastructure edged up but property contracts
  Fixed asset investment (FAI) grew 3.4% y-o-y in Jan-Oct, unchanged from the Jan-Sep period. Manufacturing investment remained robust (9.3% in Jan-Oct vs. 9.2% in Jan-Sep) and infrastructure investment improved (4.3% in Jan-Oct vs. 4.1% in Jan-Sep). In comparison, property investment continued to contract (-10.3% in Jan-Oct vs. -10.1% in Jan-Sep). We expect infrastructure and manufacturing investment to progressively pick up in the coming months, thanks to the acceleration of government bond issuance in recent months.
• Consumption Trends: Persistent confidence weakness leaves a modest outlook for consumption
  Retail sales growth accelerated to 4.8% y-o-y in October, up from 3.2% in September. This was mainly driven by the ongoing consumer trade-in program and the “Singles Day” online shopping festival which now lasts several weeks and started in mid-October. The sustainability of this growth is questionable given the persistent consumer confidence weakness, with the consumer confidence index having reached its lowest score in 22 months. We believe Chinese consumers will overall remain risk-averse and price-sensitive as long as the underlying structural factors undermining confidence are not addressed. This said, hospitality and travel-related industries will benefit from sporadic releases of pent-up demand.
• Trade Trends: Chinese export growth accelerated but the outlook remains subdued
  Export growth accelerated to 12.7% y-o-y in October, from 2.4% in September. The acceleration was fueled by a low comparison base, delayed shipment from last month due to the impacts of typhoons in port cities, and importers front-loading orders to the US and EU ahead of possible tariffs. Looking ahead, softening external demand in major economies and escalating trade tensions will weigh on China’s export outlook through this year and into 2025.