China’s economy displayed signs of stabilization last month, supported by a resurgence in retail sales growth, which reached its highest level in eight months. The uptick suggests that the latest round of economic stimulus policies introduced by Beijing may be beginning to yield results in certain key sectors. With the National Bureau of Statistics (NBS) releasing encouraging figures for retail sales and other economic indicators, the world’s second-largest economy appears to be navigating through its challenging post-pandemic recovery period.
Retail sales in China rose by 4.8% in October compared to the same period last year, a significant jump from September’s 3.2% increase. The figure surpassed economists’ forecasts, which had projected a 3.8% rise, according to a Bloomberg survey. This marked the strongest retail sales growth since February, indicating improved consumer confidence in China’s market. Analysts believe this trend reflects the positive impact of recent government policies aimed at supporting consumption and stabilizing the economy.
The retail sector’s rebound is a crucial indicator for China’s overall economic health, given the government’s ongoing efforts to shift from an investment-driven growth model toward one that relies more on consumer spending. The robust growth rate suggests that consumer sentiment may be on an upward trajectory as a result of recent government interventions.
While retail sales showed an unexpected surge, industrial output growth moderated slightly, rising by 5.3% from a year earlier—down from September’s 5.6% growth rate. Although the October figure fell short of economists’ expectations of 5.6% growth, it still represents a steady performance, showcasing China’s resilience amid a challenging global environment.
According to the NBS, “With the accelerated implementation of the existing policies and the introduction of a raft of incremental policies in October, the national economy showed stable growth trend with major indicators recovering notably and positive factors accumulated.” The statement reflects cautious optimism from officials, who are closely monitoring the economy as it faces complex challenges both domestically and internationally.
China’s latest stimulus measures, some of the boldest since the COVID-19 pandemic, were primarily aimed at ensuring the nation meets its 2024 annual growth target of around 5%. These measures include interest rate cuts, support for property and stock markets, and a $1.4 trillion debt swap program designed to alleviate debt pressures on local governments and create additional fiscal space for growth-promoting initiatives.
These policies are being introduced against the backdrop of a slowdown in China’s economic expansion, which weakened in the last quarter to its lowest level since early 2023. The government’s increased emphasis on stimulus reflects concerns over both external challenges, such as a weaker global demand for Chinese exports, and internal challenges, including tepid consumer spending and continued real estate market struggles.
One of the significant initiatives, the $1.4 trillion debt swap program, allows local authorities to restructure existing debts, potentially alleviating financial strain and enabling further investment in regional infrastructure and development projects. By providing local governments with additional fiscal capacity, the central government is hoping to spark investment and job creation in sectors that remain under pressure.
The central question remains: how far is Beijing willing to go to boost domestic demand and tackle the risk of deflation? There are indications that these efforts may become even more critical following the recent reelection of Donald Trump as the U.S. president. President Trump has indicated he may impose a 60% tariff on Chinese imports, a measure that could heavily impact China’s export-driven economy and necessitate an increased focus on domestic demand.
“While we have taken effective steps toward recovery, the external environment is increasingly complicated and severe,” the NBS statement noted. It warned that “effective demand is still weak at home and the foundation for continuous economic recovery needs to be strengthened.” This caution underscores the challenging balance China faces in stimulating its economy without exacerbating risks such as over-leveraging or excessive inflation.
Despite encouraging growth in retail sales, October’s broader economic data painted a mixed picture. Sentiment among manufacturers and service providers improved, and export growth surged to a two-year high. However, consumer price inflation remained near zero, and credit expansion grew more slowly than anticipated, signaling lingering weaknesses in domestic demand.
One of the most notable issues is that fixed-asset investment, which includes spending on infrastructure, factories, and other physical assets, grew by only 3.4% in the first ten months of the year, the same rate as the January-September period. This tepid growth suggests that businesses and local governments remain cautious, despite the availability of funds from increased bond issuance.
Finance Minister Lan Fo’an recently pledged to enact “more forceful” fiscal policies in 2025, hinting at a potential rise in the budget deficit, greater local government bond issuance, and more flexible use of the funds raised. These policies would aim to support investment in critical infrastructure projects, spur job creation, and further boost consumer spending through programs like cash-for-clunkers, which incentivizes the purchase of new vehicles.
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Perhaps one of the biggest challenges for China’s economic recovery is the continued weakness in its property market. Real estate investment declined by 10.3% in the first ten months of the year, a sharper drop compared to the 10.1% decrease recorded in the first nine months. This downward trend suggests that, despite a minor recovery in housing sales, developers are still cautious about initiating new projects.
The property market’s struggles have far-reaching implications for the broader economy. Real estate accounts for about a quarter of China’s GDP and serves as a key driver of investment, employment, and local government revenue. The continued decline in investment reflects deep-rooted structural issues, including high debt levels among developers, slowing urbanization rates, and evolving preferences among younger Chinese who may be less inclined to purchase property compared to previous generations.
China’s economic outlook is filled with both risks and opportunities as Beijing navigates a delicate path forward. The government has shown a commitment to supporting growth through a combination of monetary easing, fiscal spending, and regulatory support. However, the effectiveness of these policies will likely depend on external factors, including U.S.-China trade relations and global economic conditions.
Should global demand for Chinese goods continue to weaken, China may face greater pressure to generate growth domestically. Boosting consumer spending could thus become the focal point of future policy measures, with additional incentives for households to spend more on goods, services, and housing. However, this approach carries its own risks, particularly given China’s ongoing struggle to contain debt levels and prevent inflation from rising too quickly.
In terms of fiscal policy, the Chinese government appears prepared to step up its efforts. Finance Minister Lan Fo’an’s comments on increasing the budget deficit and expanding local government bond issuance are indications that Beijing is willing to take on higher levels of debt to support growth. This approach may be necessary, given the current global uncertainty, but it also requires careful management to prevent long-term debt challenges.
