China’s Economy Shows Signs of Recovery Amid Stimulus Push
After a sluggish six quarters, China’s economy is finally showing signs of recovery, thanks to a series of stimulus measures implemented by the government. The country’s central bank has taken steps to boost capital markets, and the real estate and stock markets are expected to receive targeted policy support.
GDP Growth Slows, But Better-Than-Expected Data Offers Hope
China’s gross domestic product (GDP) grew 4.6% in the third quarter, a slower pace than in previous quarters. However, better-than-expected data for September suggests that the economy may have bottomed out. Retail sales accelerated in September, growing 3.2% after expanding 2.1% the previous month. This boost is attributed to government subsidies for upgrading consumer goods.
Stock Market Sees Historic Rally
The central bank’s move to support capital markets has led to a historic stock rally. The CSI 300 Index of onshore stocks rebounded from earlier losses to close up 3.6% higher. Chipmaker Semiconductor Manufacturing International Corp. gained 20% after President Xi Jinping called for efforts to achieve the year’s economic goals and financial support for technology.
Economists Optimistic About Growth Target
The probability of China achieving its 2024 growth target of around 5% now looks very high, according to Jacqueline Rong, chief China economist at BNP Paribas SA. “Only a mild rebound in the fourth quarter will get the job done,” she said.
Challenges Remain, But Stimulus Measures Offer Hope
Despite the improvements, challenges remain. The property market continues to struggle, with new home prices falling for a 16th month. Deflationary pressures are also building, with consumer prices still weak and factory gate prices falling for 24 straight months. However, economists believe that the stimulus measures will help to stabilize the economy and achieve the growth target.
Government Focuses on Fiscal Policy and Debt Risks
The government has shown little urgency to ramp up consumption with direct stimulus or large-scale handouts, instead focusing on reining in local debt risks. Finance Minister Lan Fo’an has promised a major effort to bring hidden debt onto local governments’ balance sheet, easing the debt servicing burden and giving local governments greater scope to drive economic growth.
Economists Urge Continued Policy Support
While the economy shows signs of recovery, economists urge continued policy support to ensure that the growth momentum is sustained. “I don’t think that one month of slightly better activity data can justify reducing policy support to growth, especially not at a time when deflation risks have increased,” said Louis Kuijs, chief Asia-Pacific economist at S&P Global Ratings.
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