China showed slight signs of improvement last month, but they were not enough to end the tariff war promised by US President-elect Donald Trump. The host of data published this Friday by the National Statistics Office (ONE) echoes this tepid recovery. Retail sales grew at their fastest pace in eight months, up 4.8% year-on-year, compared to 3.2% last month, beating market expectations for a slight rebound.
This year-on-year figure is the highest level since that of January-February (it is carried out in a combined manner to counteract the effect of holiday periods) which marked 5.5%. Additionally, this allowed the year-to-date increase in retail sales to grow by two tenths, up to 3.5% year-on-year.
Song Lynn, chief economist for Greater China at ING, said in a note that this unexpected rebound in the Asian giant’s retail sales “mainly illustrates the entry into force of the expansion of foreign exchange policies.” What the expert is referring to is ‘renewal plan’ government to renew, mainly, household appliances and automobiles. “Both categories experienced a rebound in October,” he emphasizes.
Specifically, home appliance sales increased from 20.5% annual growth last month to 39.2% this month. Likewise, automobile sales rebounded strongly: from 0.4% year-on-year in September to 3.7% in October.
“October data also showed a surprising increase in cosmetics sales, which rose from -4.5% year-on-year to 40.1% year-on-year after experiencing negative growth for several months,” highlights Lynn. .
For its part, industrial production experienced a fairly slight slowdown, falling within the thin red line which allows it to achieve the growth objective of “around 5%” set by the Government for 2024. Concretely , it moderated by 9.4% over one year. -year, compared to 10.1% at the end of September.
In mid-October, the Ministry of Finance announced that it would use 2.3 trillion yuan (about 300 billion euros) of special local government bond funds in the fourth quarter. In addition, they also plan to issue “special state bonds” to improve the “risk resistance and lending capabilities” of state banks, with the aim of “better serving the development of the real economy “.
It appears that China is tackling one of the main structural problems holding back its economy: weak domestic consumption. Household spending lags well behind production, even though an influx of consumption was expected after the country fully opened at the end of the pandemic. This surge in domestic demand could be good news for the Chinese economy, but leaders are racing against time in the face of impending decisions by U.S. President-elect Donald Trump to impose 60% tariffs. % on their products. products.
China cannot afford to wreak havoc on the export sector as the real estate sector and domestic consumption continue to weigh on its economy. Trump’s tariffs could therefore further fuel the fire of its crisis, which is why it must act quickly, to be able to compensate for the possible erosion of exports.
BNP chief China economist Jacqueline Rong predicted that the “slight” recovery in domestic consumption could continue next year “depending on what additional policies are implemented.” We believe that greater policy support is needed to maintain growth momentum in 2025.”
Lynn Song reiterated that China’s manufacturing sector “may face more tailwinds” once these tariffs are introduced by the United States. In any case, he and his team predict that they could arrive “no earlier than the third quarter of 2025.” This means that industrial activity could still “resist decently well”. during the first semester“with room for growth if support policies that stimulate domestic demand continue to be implemented.”
Real estate gives hope
The Chinese real estate sector, criticized and battered, also showed a halo of hope last month. In 11 of 70 major cities, secondary market prices remained stable or even increased. “This was by far the best reading of the year,” Lynn said.
Specifically, in Beijing, prices increased by 1%; in Shanghai 0.2% and in Shenzhen 0.7% last month. Guangzhou was the only Tier 1 city where prices continued to fall (-0.4%).
“In our previous reports, we have often stated that the stabilization of house prices would start at the central level, and the October data is a good sign that this could start to manifest itself, although we still need more data to confirm this trend,” he added. the ING expert.
But the difference is investment in the sector, which has fallen 10.3% year-on-year so far this year. In this sense, apart from base effects, experts do not expect a great recovery of this product until prices stabilize and stocks normalize. They anticipate that the process will be lengthy in this regard.
What is clear, and on which all experts agree, is that China must continue to increase its spending to continue to stimulate the economy and meet its growth target this year. “Facing a potential shock from Trump, China has no choice but to increase domestic spending,” said Raymond Yeung, chief economist for Greater China at Banking Group.
Regardless, experts call for caution, because one month’s data is not enough to determine that consumption is rebalancing, but they believe that “the only way forward” is to trying to unlock the enormous amount of savings they are accumulating with the Asian giant.
