China - Good start to 2025, consumption support forthcoming

Activity data for January/February surprise to the upside

This morning, China’s activity data for January/February – as usual combined for the two months due to the annual shift in timings of the Lunar New Year break – generally came in stronger than expected. This confirms the picture of China’s economic resilience at the start of the year already painted by the February PMIs, just as the drags from higher US import tariffs are about to materialise. The recovery is still led by the supply side: industrial production growth was robust at just below 6% y/y ytd (consensus: 5.3%, 2024 average: 5.4%), likely helped by the frontloading of exports into the US. On the demand side, retail sales growth accelerated to 4.0% y/y ytd in January/February (consensus: 3.8%, 2024 average: 3.1%). In monthly terms, the growth of both industrial production and retail sales was a bit less impressive, at an average of 0.35 and 0.27% m/m, respectively. Meanwhile, fixed investment accelerated to a 10-month high of 4.1% y/y ytd (December/consensus: 3.2%). This was mainly driven by state-led investment, showing that previous government support has started to filter through.

… although property sector data remain weak and the unemployment rate picks up

Still, not all data for January/February were so convincing. Activity data for the real estate sector, for instance, showed that property still eats away part of Chinese growth. Property investment remained deeply in negative territory, contracting by -9.8% y/y ytd, although a touch less dramatic than the December-24 figure (-10.6%). Annual growth of new home sales also dropped back into negative territory, after having been positive in Q4-2024. Another disappointment came from the jobless rate (in urban areas), which unexpectedly rose to a two-year high of 5.4% (consensus/December: 5.1%).

More consumption support is underway

All in all, we still expect the Chinese government to continue with fiscal stimulus in line with their commitments that were confirmed in the PM’s address to the national parliament (NPC) in early March, see here. In fact, last weekend the government announced a plan to boost consumption, in line with declaring ‘supporting domestic demand’ the key policy goals for 2025; this is needed anyway, but also reflects the intensifying of external headwinds (including the stepping up of US import tariffs). The plan is directed at removing critical hurdles for consumption, by aiming to increase households’ real incomes, lower their spending on child, medical and elderly care (for instance by introducing a childcare subsidy system), and promoting consumption of services like culture and tourism. The plan shows that the government seems to be willing to look more closely at the fundamental issues that are preventing consumption from recovering more firmly, with consumer confidence still close to record lows. It is likely that these plans will be followed by more concrete measures in the coming months. We also still expect more monetary easing (in the form of policy rate and RRR cuts), although the PBoC is probably not in a hurry given the latest economic data and may want to wait a bit longer until more is known about (the drags from) further US tariff plans – which we expect to be communicated in early April.