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The View | China’s economy is bottoming out, but that’s no reason to cheer
- Despite encouraging third-quarter economic data, it is preposterous to expect any kind of meaningful recovery when the property sector is crumbling
- The economy is likely to continue bumping along the floor until new growth drivers offset the drag from the downturn in real estate and related industries
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Be grateful for small mercies. Last week, Citigroup’s Economic Surprise Index – a gauge that measures how often economic data comes in above or below expectations – swung back into positive territory for China for the first time since early June.
This is not surprising given that data for the third quarter published last week was stronger than anticipated. Gross domestic product grew at an annualised rate of 4.9 per cent, above the median estimate of 4.5 per cent. Retail sales increased at a faster pace than expected, while data on industrial output and the unemployment rate also beat expectations.
Investment banks are hurriedly upgrading their forecasts for full-year growth – which is now much more likely to exceed the government’s 5 per cent target – and calling the bottom of the downturn. Nomura, which is notoriously bearish on China, said the economy “has recently been showing signs of stabilisation”.
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JPMorgan noted that “for the first time since April, China’s growth returned to [an] above-trend path and the momentum continued into the current quarter”. More interestingly, it said “bazooka-like policy stimulus” – the response most investors have been clamouring for – was “unlikely and undesirable”. Instead, it was important to “maintain the momentum of policy support”.
The pace of easing has certainly picked up in recent months. Beijing has introduced a string of measures to counter the downturn in the stricken property sector. China’s largest cities have reduced minimum down payments for homebuyers, banks have been instructed to lower rates on existing mortgages and local governments have scrapped a requirement disqualifying people who previously had a mortgage – even if it has been repaid in full – from being treated as first-time buyers in big cities.
02:39
China’s economy sees a resurgence in the third quarter, beating forecasts
China’s economy sees a resurgence in the third quarter, beating forecasts
Yet, a cursory glance at last quarter’s data shows the scale and severity of the crisis in the real estate market. The value of output in the industry shrank 2.7 per cent, the eighth quarterly contraction in the past nine quarters. Property investment, meanwhile, fell by 9.1 per cent in the first nine months of 2023.
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