China - Waiting for fiscal support numbers… and US elections
September macro data show the Chinese economy ended Q3 on a slightly more positive note. Shape of fiscal support is getting clearer, but more information on scale and timing is still to come. Stimulus shifts balance of risks to growth forecasts positively, but this may change after US elections.
With the economy stuck in low gear, Beijing finally stepped up demand management recently. Following the PBoC’s package end September, plans for fiscal stimulus are being unveiled, but the scale and timing has yet to be confirmed. All of this shifts the balance of risks to growth positively, but this balance may change again after the US elections.
The Chinese economy ended Q3 on a slightly more positive note
China’s Q3-24 GDP came in more or less as expected, with annual growth sliding marginally to a six-quarter low of 4.6% yoy (Q2: 4.7% yoy), and sequential growth picking up to 0.9% qoq s.a. – partly reflecting payback from a weak Q2 (revised down to 0.5% qoq s.a.). Meanwhile, following the release of weak PMIs, ‘hard’ activity data for September brought a positive surprise (see our comment, ), with retail sales and industrial production accelerating in annual and monthly terms, and fixed investment stabilising. Property investment and sales remained deeply in contraction territory, but showed a tiny improvement compared to August: this could be a signal that the property sector is reaching a bottom. The surveyed jobless rate dropped back to 5.1% (August: 5.3%). All in all, the Chinese economy ended the third quarter on a slightly more positive note. However, we still think further support will be needed and forthcoming to stabilise the property sector and domestic demand (see below). This also reflects rising external risks (with export growth slowing in September), such as a broadening of trade spats with the West. These risks would rise materially should Trump win the US presidential elections next month; see our earlier coverage on this topic in the August Monthly: China – A tale of Trump risks, tariffs and trade diversion.
With the economy stuck in low gear, Beijing finally stepped up demand management recently (see our September Monthly, ). After the PBoC launched a package on September 24th, consisting of RRR and rate cuts and measures to stabilize property and stock markets, all eyes turned to fiscal stimulus, pre-announced on September 26th. This month, following the Golden Week national holiday, meetings of the NDRC, the Finance Minister and the Housing Minister brought more clarity over the shape of this stimulus (see our comments and ). A common aim is to break the negative feedback loop in real estate by putting a floor under the property market, which should help restore confidence among consumers, producers, and investors, thereby stabilising domestic demand. Fiscal support will focus eg. on resolving local governments’ debt problems, improving property developers’ financing to enable them to finish construction projects, and solidifying the capital position of the largest state banks. Direct consumption support is limited so far (to the poorest, and to students), with Beijing assuming other measures taken will indirectly support consumption. Financing is said to be via issuance of ultra-long central-government bonds and the stepping up of special local government bond issuance. These plans imply the balance of risks to China’s growth (forecasts) is shifting in a positive direction. We will review our growth forecasts (2024: 4.9%, 2025: 4.5%) next month, when more will be known about the scale/timing of fiscal stimulus (NPC Standing Committee meets on 4-8 November) and the outcome of the US presidential elections on 5 November.