China’s economic landscape in October presented a mixed picture, underscoring the world’s second-largest economy’s persistent struggle to gain momentum despite the government’s recent wave of support measures. Industrial output growth decelerated slightly while retail sales growth, buoyed by shopping festivals and a holiday period, exceeded expectations. The nuanced data could amplify pressure on Chinese policymakers, especially with external economic threats on the horizon, including the anticipated reintroduction of tariffs on Chinese goods by Donald Trump, who is slated to return to the White House.
The National Bureau of Statistics (NBS) reported that China’s industrial output grew by 5.3% year-over-year in October, a slight slowdown from the 5.4% growth recorded in September. This figure fell short of the anticipated 5.6% increase forecasted by a Reuters poll of 43 analysts, marking a minor setback in China’s industrial recovery amid ongoing challenges in domestic and international markets. In contrast, retail sales, a key indicator of domestic consumption, increased by 4.8%—well above the previous month’s 3.2% rise and exceeding the projected 3.8%.
The retail sales surge was largely attributed to October’s week-long holiday and China’s annual Singles’ Day shopping festival, which started earlier than usual this year, on October 14. Data provider Syntun estimated that Singles’ Day sales across major e-commerce platforms grew by 26.6%, totaling approximately 1.44 trillion yuan ($197 billion). This surge indicates that consumer spending in China still has potential despite broader economic headwinds.
Fixed asset investment, an important growth driver, rose by 3.4% over the first ten months of 2024, a rate that matched the January-to-September figure. This increase fell slightly below expectations of a 3.5% rise, suggesting that investment growth may have plateaued as companies remain cautious amid uncertain domestic and international conditions. China’s fixed asset investment, covering expenditures on infrastructure, property, and machinery, has struggled to regain its former vigor, dampened by a deceleration in construction and manufacturing investment.
In a further sign of economic fragility, China’s consumer prices saw their slowest growth rate in four months in October, and producer price deflation deepened. The latter signals that manufacturers may still be grappling with weaker demand, even as the government ramps up support for the industrial sector. The consumer price index (CPI) increase was muted, reflecting persistently low levels of consumer demand. The deflationary pressures on producer prices suggest that Chinese manufacturers continue to face difficulties in passing on higher costs, leading to reduced pricing power across various sectors.
Faced with these challenges, China’s central government has rolled out a series of substantial measures aimed at boosting economic momentum. Last month, the People’s Bank of China (PBOC) announced its largest stimulus package since the pandemic to improve liquidity and stimulate growth. Last week, the country’s top legislative body approved an additional 10 trillion yuan ($1.4 trillion) package. Rather than delivering cash injections directly into the economy, this initiative is focused on alleviating local governments’ “hidden debt” burdens—a prevalent issue in many regions.
The debt relief measure signals an emphasis on stabilizing China’s financial system by reducing risky debt levels. While this move may bolster fiscal health in the long term, it stops short of the direct economic boost some investors had anticipated.
Additionally, tax incentives on home and land transactions were introduced to bolster China’s ailing property market, which has struggled under heavy debt burdens and waning demand. The property sector is crucial to China’s economy, accounting for up to 30% of its GDP, and its prolonged slump has had far-reaching effects on various industries.
Economists have tempered their expectations for the impact of China’s recent policy measures, suggesting that they will yield only limited short-term economic benefits. “China’s debt-reduction package is certainly a step in the right direction to prevent financial destabilization,” says a Hong Kong-based economist, “but it doesn’t translate into the kind of immediate growth boost that direct fiscal stimulus would provide.” The consensus among analysts is that while the measures may help to contain risks within the financial system, they are unlikely to offer significant stimulus to the real economy over the coming months.
Adding to China’s domestic economic uncertainties is the renewed external pressure posed by the U.S. President-elect Donald Trump’s planned trade policies. Trump, who won the U.S. presidential election last week, has indicated a return to aggressive tariffs on Chinese goods, with figures as high as 60%. Trump has also appointed individuals known for their hardline stances on China to his cabinet, suggesting that U.S.-China relations could enter a period of heightened tensions.
These proposed tariffs pose a substantial threat to Chinese exports, one of the main pillars of China’s economy. Economists warn that the reimplementation of such tariffs could have adverse effects not only on China’s economic stability but also on global supply chains, many of which are still recovering from disruptions caused by the COVID-19 pandemic and subsequent geopolitical tensions.
In anticipation of these pressures, the Chinese government may face increasing difficulty in meeting its economic goals for the year. Beijing has set a growth target of approximately 5% for 2024, but recent forecasts suggest that this figure may fall short, with some analysts projecting a decline to 4.5% in 2025 as the global and domestic economic environments remain uncertain.
- Manufacturing: The manufacturing sector, a traditional driver of China’s growth, remains under pressure from low demand and shrinking profit margins. While government efforts to support industry are ongoing, the prolonged decline in producer prices highlights the uphill battle facing the sector.
- Real Estate: The property market’s struggles have continued despite recent policy interventions. The government’s decision to ease taxes on property transactions may offer some relief, but analysts note that a deeper recovery is contingent on improved consumer confidence and broader economic stabilization.
- Consumer Goods: Although retail sales saw an October boost, long-term consumer demand remains a concern. Structural challenges, such as a high savings rate among Chinese households and subdued wage growth, continue to inhibit a robust recovery in consumer spending.
- Financial Sector: China’s financial sector could also feel ripple effects from the government’s debt relief package, particularly if local governments require additional support to service their debts. If managed carefully, these measures could prevent debt crises in the future, though they come with the trade-off of slower short-term economic growth.
China’s economic challenges are likely to reverberate globally, particularly in Asia and among major trading partners. A prolonged slowdown could have significant impacts on commodity-exporting countries and multinational corporations heavily reliant on Chinese markets. Moreover, the possibility of escalating trade frictions with the United States adds a layer of complexity, potentially resulting in further disruptions to global trade flows.
The U.S.-China trade relationship has experienced numerous strains over the past few years, and Trump’s election has introduced a new phase of potential confrontations. Escalating tariffs and trade barriers could prompt further decoupling of the U.S. and Chinese economies, compelling businesses to reassess their supply chains and potentially accelerating shifts in manufacturing and investment patterns across Asia and beyond.
