Overview

• China’s Central Economic Work Conference occurred last week, signalling the prospect of further monetary easing and a larger fiscal deficit next year. Following the Politburo’s announcement earlier in the week that it seeks to “vigorously boost consumption”, the conference noted that the focus should be on households, albeit the release following the conference was light on detail – flagging an expansion of the consumer goods trade-in program (which has been of questionable success) and increases in pensions and medical insurance payouts. While the latter two measures are a positive step – a lack of an effective social safety net encourages a higher savings rate – there is a lack of detail (particularly around the level of coverage and scale), and there is no guarantee that extending these benefits will directly boost consumption – given weak confidence post pandemic. Greater clarity on these policies may not occur until the National People’s Congress in March.
• Our forecasts for China’s economy remain unchanged – we see growth at 4.7% in 2024 and 4.6% in 2025 before easing to 4.2% in 2026 – noting the ongoing uncertainty around these forecasts presented by US trade policy as well as any policy changes by Chinese authorities in its wake.
• China’s industrial output grew marginally more rapidly in November – increasing by 5.4% yoy (up from 5.3% yoy in October). Motor vehicles and electronics are outpacing heavy industrial sectors.
• In real terms, China’s fixed asset investment grew more slowly in November – down to 4.9% yoy (from 6.3% yoy previously). Nominal investment remains driven by state-owned enterprises (SOEs), with investment rising by 5.1% yoy in November. In contrast, private sector investment expanded by just 0.7% yoy.
• China’s trade surplus edged higher in November, as a month-on-month increase in exports outpaced a modest pickup in imports. The trade surplus totalled US$97.4 billion – over taking last month’s mark as the third largest on record.
• Real retail sales growth slowed in November (following the uptick in October) – up by 2.8% yoy (from 4.5% yoy in October) – the same rate of increase recorded in September and well below pre-pandemic trends, highlighting the ongoing weakness in China’s domestic demand.
• China’s new credit issuance totalled RMB 29.4 trillion in the first eleven months of 2024 – down around 12.6% yoy. The key driver of this downturn was a reduction bank lending – which fell by 24.2% yoy. In contrast, non-bank lending rose by 6.5% yoy over this period, primarily driven by government bond issuance.
• The effectiveness of monetary policy easing measures is questionable, given the environment of weak loan demand – which has been negatively impacted by the housing downturn, poor consumer confidence and regulatory pressure on various private sector firms (particularly in the technology industry). This highlights the importance of well-directed fiscal support to sustainably expand domestic demand.

For further details please see China’s economy at a glance (16 December 2024)