China - Weak October data, more property support

China Macro: October data confirm ongoing headwinds

The October macro data published this morning came in even weaker than was already expected, illustrating the ongoing stark headwinds from Zero-Covid, the property sector downturn and a slowdown in global growth. That was particularly true for retail sales, which showed their first annual contraction since May, of -0.5% yoy (September: +2.5%, consensus: +0.7%). To a large extent, this reflects pandemic flare-ups and the renewed tightening of Covid-19 related restrictions within the ‘dynamic clearing framework of mass testing with mini lockdowns’, particularly in the run-up to the CCP summit in Beijing in mid October – including the national holiday week at the start of last month. Meanwhile, industrial production growth fell back to 5.0% yoy (September: 6.3%, consensus: 5.3%), while fixed investment was more or less stable compared to last month, growing by 5.8% yoy ytd (Jan-Sept: 5.9%, consensus: 5.9%). The October data did not show an improvement in real estate, with both property investment (-8.8% yoy ytd) and residential property sales (-28.2% yoy ytd) remaining lacklustre. By contrast, infrastructure investment remains strong (+8.7% ytd), reflecting the stepping up of government support. The unemployment rate stabilised at 5.5%, with youth unemployment remaining at a high 17.9%. All in all, Bloomberg’s monthly GDP estimate fell back to 5.1% yoy in October, down from 6.1% in September.

Beijing rolls out more support for struggling property sector

China’s central bank and banking and insurance regulator recently announced a relief package for the struggling property sector, consisting of 16 measures. These include a call to banks to step up lending to financially sound property developers, increased access to presale funds for healthy developers, the extension of payment deadlines for distressed developers enabling debt workouts, and additional efforts to safeguard the construction of unfinished projects. The package confirms that Beijing is now putting in more effort to mitigate the systemic risks from the property sector, the need of which we highlighted in earlier publications (see for instance the box in our October Global Monthly). So far, Beijing had been more piecemeal in its approach and relied in part on measures at the local level, given concerns over moral hazard and the need for consolidation in the sector.

We think this centrally initiated package should help restoring trust, although this will take time, and is also depending on the evolution of Covid-19 policies. On that note, Beijing accounced an easing of testing and quarantine restrictions last week, while calling for more (local) focus on reducing the economic impact from Zero-Covid, just as Omicron cases are surging to the highest levels seen since the spring. While we do not foresee a major turnaround in Zero-Covid before Q2-2023 (also see our recent publication here), the policy announcements related to China’s main domestic drags (property sector and Zero-Covid) help to improve sentiment. The same is true for the first face-to-face meeting ever between the US and Chinese presidents held at the margins of the G20 summit in Jakarta on Monday, in which both world leaders agreed to keep US-China tensions at bay and prevent a “new Cold War’. China’s leading stock market index (CSI300) has gained over 10% so far in November, after losing more than 20% since early May.