Explainer | Is China’s economic recovery still making headway? 6 takeaways from November’s data

Real estate investment fell by 9.4 per cent in the first 11 months of 2023 compared with a year earlier, while private investment remained in contraction
China’s retail sales rose by over 10 per cent in November, year on year, but Beijing still faces lots of challenges to manage an uneven economic recovery

China's economic recovery

Andrew Mullen

Published: 12:00am, 16 Dec 2023

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1. Retail sales ‘hold up well’

China’s retail sales rose by 10.1 per cent in November, year on year, up from the 7.6 per cent growth in October, but below the 12.6 per cent growth forecast by Chinese financial data provider Wind.

Analysts at Capital Economics said consumption “held up well”, though they pointed to the low base of comparison from last year as cities in China were under stringent lockdowns and retail sales fell by 5.9 per cent, year on year, in November 2022.

“While retail sales have shown strong year-on-year growth, this increase is primarily due to a low-base effect,” said Yue Su, principal economist for China at The Economist Intelligence Unit.

“When considering month-on-month growth, after eliminating seasonal factors, there has been a mild contraction.”

2. Property investment remains biggest drag

Property investment in China fell by 9.4 per cent in the first 11 months of 2023 compared with a year earlier, with analysts at Capital Economics saying “property investment eased slightly” without elaboration.

The reading for the key gauge for market sentiment in the crisis-hit sector declined further from a fall of 9.3 per cent a month earlier, while it matched the forecast from Wind.

“While markets may have become somewhat desensitised by constant discussions related to the property sector, it remains the single largest drag affecting China’s economy, especially as cash-strapped and insolvent developers have left a vast number of homes unfinished,” said analysts at Nomura.

3. Fixed-asset investments hold steady

Fixed-asset investments in China expanded by 2.9 in the first 11 months, year on year, unchanged from the growth seen in the January-October period, though analysts at Nomura said the reading again missed market expectations mainly due to a low base.

The reading was partly lifted by Beijing’s decision in October to sell 1 trillion yuan (US$139 billion) worth of sovereign bonds, and also front-load the local government bond quota, to stabilise economic momentum.

China’s economic struggles continue as property, private investment drag

Analysts at Capital Economics said the year-to-date growth holding steady in the first 11 months of the year implied an acceleration in monthly year-on-year growth from 1.4 to 2.9 per cent, with growth also picking up in seasonally adjusted terms.

Private investment, meanwhile, declined by 0.5 per cent in the first 11 months of the year, compared with a year earlier.

4. Industrial production provides strength in November

China’s industrial output rose by 6.6 per cent in November, compared with 4.6 per cent growth in October, and analysts at Capital Economics said this was the “main bright spot” in November’s data release, thanks to the strength in exports.

“Much of the strength in November came from industrial production. Growth beat expectations,” they said.

Sustained export growth in ‘doubt’: 5 takeaways from China’s trade data

They added that, after adjusting for seasonality, output in November expanded at the fastest clip in 18 months.

“This partly reflects the recent strength of exports, which reached a new high in volume terms last month,” they said.

Analysts at Nomura said the higher year-on-year growth, which they said was broad-based, was mainly driven by a low base.

5. Urban unemployment rate remains stable

China’s urban surveyed unemployment rate stood at 5 per cent in November, year on year, unchanged from October.

Analysts at Capital Economics said, in seasonally adjusted terms, the urban unemployment rate edged and remains well below the 5.6 per cent it averaged last year.

They also said hours worked rose last month.

6. China’s recovery continues to make headway

Analysts at Capital Economics said the data released on Friday suggested that “the recovery continued to make headway” in November.

“This partly reflects the step-up in policy support, which looks set to remain flowing, going into 2024,” they said.

They pointed to the signals that came from the central economic work conference earlier this week that suggested more fiscal support and additional monetary easing were on the way.

“The November data indicates a continuing steady recovery in China’s economy, driven by government-driven investment and a gradual stabilisation of external demand,” said Yue at The Economist Intelligence Unit.

Nevertheless, the economy will be on firmer footing than it was in 2023

Yue Su

Yue expects China’s real gross domestic product growth to slow by 0.6 percentage points to 4.9 per cent in 2024.

“Nevertheless, the economy will be on firmer footing than it was in 2023,” Yue said. “Moves by the government to extend home-buying easing in Beijing and Shanghai will help, but a weak labour market and income expectations will serve as a drag” on a strong economic recovery.

The property market remains the single-largest drag affecting China’s economy, according to analysts at Nomura, who said it may contribute to another economic dip in the first half of 2024.