China’s economy still facing ‘ups and downs’ despite trade, inflation uptick in September
- Declines in China’s exports and imports narrowed in September, but deflationary pressure and weak domestic demand remain headaches for Beijing
- Weak confidence in the property market, as well as the uncertainty in the global economy and a potential slowdown in the US are seen as major headwinds
China’s economy witnessed increased signs of improvement in September, as supportive policies started to take effect, although persistent headwinds may still dampen a sustained recovery, analysts said.
Trade improved modestly last month as declines in exports and imports narrowed, but headline inflation readings indicated lingering deflationary pressure and stubbornly weak domestic demand.
Later on Friday, the People’s Bank of China said that it had ample policy room to support the economy.
It won’t be a one-way process, it will have its ups and downs
“But there won’t be a bazooka stimulus in the near future, instead, it will remain a piecemeal strategy like what was seen in the past few months.”
Weak confidence in the property market, as well as the uncertainty in the global economy and a potential slowdown in the United States, are among the main challenges facing China, Hu added.
In September, exports fell for a fifth consecutive month after dropping by 6.2 per cent from a year earlier to US$299.1 billion, the General Administration of Customs said on Friday.
The drop in imports also narrowed, falling by 6.2 per cent last month from a dip of 7.3 per cent in August.
The producer price index (PPI) – which reflects the prices that factories charge wholesalers for products – fell for a 12th consecutive month after dropping by 2.5 per cent in September, but also narrowing from a fall of 3 per cent in August.
China’s consumer inflation flat, factory prices fall for 12th month in a row
But despite the signs of improvement, the deepening property crisis and weak confidence from private and foreign companies have continued to weigh on overall economic growth.
Customs spokesman Lu Daliang said on Friday that China’s exports would face continued and tough challenges going forward.
But with China’s total trade surplus in September rising to US$77.71 billion, up from US$68.4 billion in August, it could offer China room to manage its exchange rate, said Zhang Zhiwei, president and chief economist at Pinpoint Asset Management.
“As we head into the fourth quarter, China’s trade surplus will likely stay strong,” he said.
China can, he added, afford to keep the US dollar-yuan exchange rate stable and tolerate appreciation of its currency in the next few months.
Exports to its biggest trading partners, though, presented a mixed picture in September.
Shipments to the Association of Southeast Asian Nations (Asean) – China’s largest trading partner – contracted by 15.82 per cent to US$44 billion last month, wider than August’s 13.25 per cent decline.
September’s shipments to the United States also fell by 9.34 per cent, year on year, to US$46 billion, extending a 14-month streak of continuous declines.
Exports to the European Union dropped by 11.61 per cent last month, year on year, to US$41.5 billion, although the decline was narrower than August’s 19.58 per cent fall.
Shipments to Russia, meanwhile, soared by 20.58 per cent in September compared to a year earlier, higher than August’s increase of 16.31 per cent.
We believe that China will continue its efforts to diversify exports into more new and emerging markets
“The rise in exports to the Asean early this year helped offset the decline to Europe and America, but since then, the Asean momentum has also slowed as the global economic slowdown continued,” said Thomas Shik, head of economic research at Hang Seng Bank in Hong Kong.
He expects trade to further improve in the fourth quarter due to a low base of comparison, but the near-term outlook will remain challenging.
“We believe that China will continue its efforts to diversify exports into more new and emerging markets and to promote domestic demand to shore up growth,” added Shik.
“We are hopeful that China’s trade environment may improve next year after the world economy stabilises and global interest rates reach their peaks.”
Is there still a window of opportunity for China’s GDP to surpass the US?
China will release gross domestic product figures for the third quarter, as well as other major gauges on investment and manufacturing for September, next week.
Alicia Garcia-Herrero, chief economist for Asia-Pacific at French investment bank Natixis, said exports are expected to support the economy, along with a slight improvement in consumption and manufacturing investment.
Ruling out an influx of stimulus, she expects China’s economy to grow by 5.2 per cent this year, with the additional issuance of local government bonds “mainly to avoid the cliff in growth in 2024”.
She also expects 4.2 per cent growth in 2024, “but relying on some fiscal and monetary stimuli”.
