China consumers provide boost to economy still in need of support, latest data shows

SHANGHAI – Chinese consumer spending outperformed expectations in October, providing a needed boost to the world’s second-largest economy as policymakers weigh more stimulus to support the rebound into the new year.

Retail sales climbed 7.6 per cent from a year earlier, the National Bureau of Statistics (NBS) said on Wednesday, a better-than-forecast result aided in part by favourable comparisons to a weak month in 2022.

October also captured the week-long Golden Week holiday period. Industrial production rose 4.6 per cent, also higher than projections.

There were still obvious signs of weakness elsewhere: Growth in fixed-asset investment slowed to 2.9 per cent in the first 10 months of 2023, worse than forecasts and lower than in the period through September. A worsening contraction in property investment contributed to the poor figures.

“China’s economy seems to have averted fears about a broader sequential slowdown in October,” said Mr Carlos Casanova, a senior Asia economist at Union Bancaire Privee in Hong Kong.

“With that being said, the devil is in the details,” he said, noting the drag in real estate investment and adding that official strategies to restructure debt in the property sector will take several years to resolve. “Policy support is still needed in order to address concerns around domestic sentiment and housing demand.”

While the economy outperformed expectations in the July-to-September period, recent indicators have pointed to weakening momentum and demand as the final quarter kicked off.

Official and private surveys showed factory activity contracting and growth in services moderating. A drop in exports worsened, consumer prices dipped back into deflation and borrowing by households and firms was muted.

Policymakers are taking steps to add stimulus to help the economy, including via an unconventional mid-year budget revision and the approval of one trillion yuan (S$188.5 billion) worth of sovereign bonds for infrastructure investment in October.

Just before the data was released, the People’s Bank of China injected the most cash since 2016 through its medium-term lending facility on Wednesday to support funding for growth.

Beijing is also planning to provide at least 1 trillion yuan of low-cost financing to the nation’s urban village renovation and affordable housing programmes to help the property market, Bloomberg News reported.

The NBS highlighted the improvement in major indicators in its statement accompanying the data, adding that the economy “operated stably overall”.

But it noted ongoing challenges from external uncertainties and insufficient domestic demand, adding that the “foundation of the economic rebound still needs to be solidified”.

Some economists cautioned that consumer sentiment is still not on a completely sure footing.

October retail sales grew at a similar pace to September, according to Pinpoint Asset Management chief economist Zhang Zhiwei, who added that “domestic demand is still weak”.

In an interview with Bloomberg TV, BNP Paribas chief China economist Jacqueline Rong said: “Consumer activities remain a little bit downbeat in China because of the poor consumer sentiment, as well as the negative wealth effect coming from the property market.”

Even so, Ms Rong said the data confirmed that China is “definitely in a mild economic rebound”, adding that growth is on track to overshoot the official target of around 5 per cent for 2023.

For investors and analysts, that means attention is turning to the economy’s real momentum and longer-term perspectives. The persistent property crisis, ageing population and low business growth remain serious concerns. BLOOMBERG