China: Decent October data on day Xi meets Biden
China Macro: October data confirm bottoming out, but with headwinds remaining. Government continues with targeted support. Biden and Xi meet in San Francisco.
China Macro: October data confirm bottoming out, but with headwinds remaining
China’s October activity data published earlier today came in a touch better than expected. The biggest positive surprise came from retail sales, with annual growth accelerating to 7.6% yoy (September: 5.5%, consensus: 7.0%). Note that these annual growth numbers are flattered by base effects, as the Chinese economy was faced with another round of broadening Omicron-related lockdowns one year ago. In monthly terms, retail sales grew marginally, by 0.1% mom, and are still clearly below the pre-pandemic trend. Growth of industrial production picked up slightly to 4.6% yoy (September/consensus: 4.5%), with the monthly expansion rate flat at 0.4% mom. Fixed investment slowed further to 2.9% yoy in January-October (Jan-Sept/consensus: 3.1%), with property investment falling deeper into contraction territory (-9.3% ytd). Residential home sales did not yet show signs of improvement either, falling back to -3.7% yoy in January-October (Jan-Sep: -3.2%). The unemployment rate was stable at 5.0%. Bloomberg’s monthly GDP estimate rose to 6.3% yoy (September: 5.9%). All in all, the October data confirm the further bottoming out of the Chinese economy, but also point to ongoing headwinds from property sector woes and the global slowdown – with earlier warning signs coming from October PMIs and exports.
Government continues with targeted support
Meanwhile, in line with our expectations, the Chinese government continues to add targeted fiscal support, particularly for sectors facing debt distress (the property sector and local governments). Following the announcement of a plan to issue CNY 1 trn (USD 137 bn) in sovereign bonds to support local governments in late October, yesterday Beijing announced it will provide another CNY 1 trn in special property loans through the so-called Pledged Supplemental Lending Facility. These loans will be provided by policy banks to property developers of shantytown renovation projects, and will ultimately trickle down to households for new home purchases. This is similar to earlier shantytown redevelopment programs rolled out since 2015, which were aimed at supporting the property sector. The re-introduction of this program signals a stronger commitment of the Chinese government to take action to put a floor under the property market downturn and stabilise economic growth. On the monetary policy front, today the PBoC added a record CNY 1.45 trn (USD 200 bn) of additional liquidity into the financial system through its medium-term lending facility, while keeping the related policy rate unchanged at 2.50%.
Biden and Xi meet in San Francisco
Later today, China’s president Xi Jinping will meet US president Joe Biden in San Francisco, at the margins of the APEC meeting. This will be Xi’s first trip to the US in six years, and the first face-to-face meeting of the leaders of the world’s two largest economies since their November 2022 meeting in Jakarta. Since then, US-China relations have been tested by spy balloon incidents, by developments in the Taiwan Strait and China’s position versus Russia, and by ongoing US restrictions on China-related (tech) exports and investment. Still, over the past few months, steps have been taken to prevent the bilateral relationship going into a downward spiral. Several high ranking US officials have tried to get the message across that the US is not aiming for a full decoupling from China, but rather for targeting a selected number of sectors that are sensitive from a national security perspective with clear export and investment restrictions (‘Small Yard, High Fence’ strategy). The Biden-Xi meeting should also be seen in this context, at the brink of a challenging year with presidential elections in Taiwan (January) and the US (November).
Perhaps the reopening of military communication channels will be one of the most important outcomes of the meeting. These communication lines had been frozen since former US House Speaker Pelosi’s visit to Taiwan in August 2022. Other issues that are on the agenda, allegedly, are Taiwan, Ukraine, Israel/Hamas, artificial intelligence, China’s crackdown on fentanyl exports, while China will likely ask for a rollback of export and investment restrictions and tariffs. For more background on our take on US-China relations, see our .