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China Retail Sales Surpass October Forecasts Despite Deepening Real Estate Slump

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China posted stronger-than-expected growth in retail sales for October, signaling early success from its recent stimulus measures, even as its real estate sector continued to struggle.

Economic Indicators at a Glance

  • Retail Sales: Up 4.8% year-on-year, surpassing the 3.8% forecast and improving from 3.2% in September.
  • Industrial Production: Increased by 5.3% annually, slightly below the expected 5.6%.
  • Fixed Asset Investment: Rose 3.4% year-to-date, missing the 3.5% estimate.
  • Real Estate Investment: Plummeted 10.3% year-to-date, marking the sharpest drop since August 2021’s 10.9% decline.
  • Unemployment Rate: Dropped to 5%, an improvement from 5.1% in September, with youth unemployment also showing signs of recovery.

Stimulus Impact and Sectoral Insights

  1. Retail Recovery:
    • October’s retail sales highlight improved consumer sentiment, bolstered by October’s Singles’ Day shopping festival. Analysts noted robust growth in sectors like e-commerce and consumer electronics.
  2. Real Estate Woes:
    • The property sector’s decline deepened, with new property sales showing narrower declines but remaining weak.
    • Authorities reiterated commitments to stabilize the sector, projecting recovery within 12–18 months.
  3. Manufacturing and Infrastructure:
    • Investments in manufacturing and infrastructure picked up slightly, reflecting a shift toward targeted economic support for foundational sectors.

Policy Landscape

China’s government has rolled out aggressive stimulus measures since September to address its economic challenges:

  • Monetary Policy: Interest rate cuts by the central bank and extended real estate support.
  • Fiscal Measures: A five-year, 10 trillion yuan ($1.4 trillion) program to alleviate local government debt, with hints of further support in 2024.
  • Consumer Incentives: Limited direct measures, but trade-in programs for cars and home appliances have helped bolster sales.

The National Bureau of Statistics emphasized the need for intensified policy implementation to meet the country’s annual growth target of around 5%.

Broader Trends and Challenges

  • Exports Surge, Imports Lag: October saw the fastest export growth in over a year, while imports remained subdued, reflecting weak domestic demand.
  • Inflation: The core consumer price index rose 0.2% year-on-year, slightly better than September’s 0.1%.
  • Golden Week Insights: Spending trends during the holiday remained cautious, though better-than-expected Singles’ Day sales hint at potential resilience in consumer activity.

Economic Outlook

China’s gross domestic product grew by 4.8% in the first three quarters, and authorities remain focused on achieving the 5% growth target for the year. Analysts remain cautiously optimistic, with signs of stabilization in certain sectors tempered by persistent domestic and international headwinds.

 

China’s State Planner Announces Economic Boost but Holds Back on Major Stimulus

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During a highly anticipated press conference on Tuesday, Zheng Shanjie, chairman of China’s National Development and Reform Commission (NDRC), outlined a series of measures aimed at strengthening the country’s economy. Despite these efforts, there were no announcements of major new stimulus initiatives, dampening investor enthusiasm and causing the rally in Chinese markets to lose momentum.

One key announcement was the acceleration of special purpose bond issuance to local governments, intended to support regional economic growth. Zheng emphasized that the 1 trillion yuan in ultra-long special sovereign bonds had been fully allocated to local projects. He also pledged to continue issuing ultra-long special treasury bonds next year. In addition, the central government will release a 100 billion yuan investment plan for 2024 by the end of this month.

The press briefing came as mainland China’s markets reopened after the weeklong Golden Week holiday. While markets initially surged on the news, the lack of significant new stimulus caused gains to slow. The CSI 300 blue-chip index pared its rise to 5% after an early jump of over 10%, while the Shanghai Composite and SZSE Component indices also trimmed gains to 5% and 8%, respectively.

Limited Stimulus Falls Short of Investor Expectations

Although Zheng expressed confidence that China would meet its annual growth target, his comments on the property market and domestic spending lacked detailed financial commitments, leaving some investors disappointed. Yue Su, an economist at the Economist Intelligence Unit, noted that the absence of specific figures might not be a negative indicator, as China’s pro-growth policy stance remains unchanged. Su maintained her forecast of 4.7% growth for China in 2023, with a slight uptick to 4.8% in 2025.

Shaun Rein, managing director at China Market Research Group, commented that many Western investors might take a cautious approach following the announcement. He added that without concrete fiscal stimulus, the recent rally in Chinese markets could be short-lived.

Economic Struggles Persist

China has been grappling with a sluggish economy following a disappointing recovery from COVID-19 lockdowns. Growth in the world’s second-largest economy has been hindered by weak domestic demand and a prolonged downturn in the property sector.

In the first half of 2023, China’s economy grew by 5%, meeting government targets. However, in the second quarter, growth slowed to 4.7%, marking the slowest pace since the first quarter of 2023. Inflation data has also been lackluster, with consumer prices rising by just 0.6% year-on-year in August, missing expectations. Factory activity contracted for the fifth consecutive month in September, with the official Purchasing Managers’ Index (PMI) recording 49.8, signaling continued contraction in the manufacturing sector.

Zheng acknowledged that China still faces significant challenges in achieving its growth objectives. Earlier in the year, he had emphasized the importance of coordinated macroeconomic policies, including fiscal, monetary, employment, and industrial measures, as the country continues to adjust its economic strategies.

While Beijing has introduced several stimulus measures aimed at halting falling property prices and bolstering economic performance, these actions have yet to fully reverse the slowdown. Investors remain cautious, awaiting further fiscal support from the government to reinvigorate the economy.

 

China’s Economic Struggles Impact Golden Week Holiday Spending

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China is bracing for a bustling Golden Week travel season, with the Ministry of Transport estimating 1.94 billion inter-city trips during the National Day holiday. This figure slightly surpasses last year’s total, indicating a potential recovery in domestic travel. However, persistent economic challenges, including a real estate downturn and rising unemployment, are expected to dampen consumer spending during this traditionally high-spending period.

Shaun Rein, founder and managing director of China Market Research Group, notes that while travel volume might surpass 2019 levels, spending per traveler is expected to decline. Consumers are adopting a more cautious approach, cutting back on expenditures amid economic uncertainty. Rein attributes this frugality to concerns about unstable income levels, with many Chinese opting to save until they see consistent economic improvements.

Data from Trip.com supports this trend, with both hotel and flight prices falling below last year’s levels. Prices for domestic and international flights have dropped compared to 2022, reflecting a broader trend of travelers seeking more budget-friendly options. The National Railway Administration expects 175 million rail trips during the Golden Week, as more people turn to lower-cost transportation. This year’s rail passenger volume is predicted to peak at over 21 million on Tuesday, surpassing the previous record of 20.7 million set during the Labor Day holiday in May.

Despite lower spending per traveler, there are signs of a modest uptick in tourism overall. Alicia Garcia Herrero, chief economist at Natixis, suggests that this year’s slight rise in tourism spending should be viewed in the context of last year’s relatively low base. During last year’s Golden Week, domestic tourism revenue reached 753 billion yuan ($107.37 billion), a 1.5% increase from 2019. Although total spending is on the rise, frugality remains a theme for many travelers.

China’s tourism sector has seen some recovery in 2023. The Ministry of Culture and Tourism reports a 16.8% increase in domestic trips over the first three quarters of the year, with 4.29 billion trips taken. Tourism revenue has also risen by 17.1%, reaching 4.32 trillion yuan ($615.6 billion). Inbound passenger trips have grown by 55.4%, totaling 95 million for the year to date.

While these numbers reflect gradual improvement, the post-pandemic recovery has been uneven. For example, during the May Labor Day holiday, China saw more trips and higher total spending than in 2019, but the average spending per traveler remained lower than pre-pandemic levels. The effects of the COVID-19 pandemic, combined with broader economic uncertainty, continue to influence consumer behavior.

To address these economic challenges, Chinese officials recently introduced new stimulus measures, including a 50-basis-point reduction in banks’ reserve requirement ratio, aimed at boosting liquidity. Shaun Rein anticipates that these measures could lead to a significant rebound in consumer spending during the upcoming Chinese New Year once the latest round of economic support is fully absorbed.