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China Economic Activity October 2023

China: Economic activity data is mixed in October

Industrial output increased 4.6% year on year in October (September: +4.5% yoy). The print marked the best reading since April. The improvement was largely due to stronger manufacturing output growth. In addition, mining and quarrying production improved. Also in October, retail sales rose 7.6% year on year, up from 5.5% in September and supported by pent-up travel demand during the Golden Week holiday—the first such Golden Week holiday since the lifting of Covid-19 restrictions at end-2022.

In contrast, in January–October, fixed investment rose at a softer pace of 2.9%, down from 3.1% in January–September and marking the worst result since December 2020. While investment by state-owned enterprises remained strong, private investment continue to contract, a sign of subdued business confidence.

The industry and retail data beat market expectations, though fixed investment was weaker than expected. Taken together with weaker-than-expected PMI and export data and deflation in October, the figures paint a mixed picture of the economy at the outset of Q4.

Our Consensus is for GDP growth in Q4 to be roughly stable from Q3. If this forecast is borne out, the economy would meet the government’s 5.0% growth target for 2023 as a whole. Extra fiscal spending announced in October should provide support, and the Central Bank is reportedly mulling CNY 1.0 trillion of financial support for the property sector, which if confirmed could give a further boost.

DBS’ Samuel Tse is skeptical of the impact of Central Bank support for real estate:

“The authorities […] plan to inject an additional RMB1trn of Pledged Supplemental Lending (PSL) to support the housing market. This could be the second trillion-worth stimulus in a month. Such a move could potentially raise the outstanding PSL to a historical high of RMB3.9trn. However, the immediate impact of such injection remains questionable. After all, the additional PSL injection is only equivalent to 1.9% of the total outstanding real estate loans.”

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