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China’s economy is finally showing some signs of stabilisation. In August 2023, Chinese industrial profits surged by 17.2% year-on-year, marking the first positive growth since the second half of 2022. Notably, this resurgence follows the government-offered stimulus measures to inject liquidity into the country’s property market and spur consumer spending.
Data from August suggests that profits improved for 30 out of 41 major Chinese industries. The losses in the raw material manufacturing industry shrunk significantly due to rising commodity prices and recovered demand.
In contrast, between January and July of this year, 28 out of 41 Chinese industries experienced a decline in earnings. And for the first eight months of 2023, Chinese industrial profits declined by 11.7% year-on-year.
PBOC vows to boost domestic industry and consumption
After upbeat news over Chinese industrial profits, the economy can also look forward to another boost with the Peoples Bank of China (PBOC) vowing their support for domestic consumption.
China’s central bank pledged to offer “more powerful” policy support for the nation’s economy, including its embattled property market, as it concluded its third-quarter monetary policy meeting.
“There will be a focus on expanding domestic demand, boosting confidence, speeding up a healthy economic cycle, and providing more support to the real economy”, said the PBOC. China is also set to increase government investments and implement policy incentives to enhance private investments.
Furthermore, the authorities have pledged to continue implementing previously introduced monetary easing measures and ensure “reasonably ample” liquidity levels. They have also committed to maintaining credit growth at a “rational and steady pace”.
Addressing the concerns over deflation in China, the PBOC indicated that it will facilitate prices to rebound and stay at reasonable levels. Beijing further promised to focus and expand support for specific sectors such as small and medium firms, sustainable sectors, infrastructures, as well as technology innovation.
Besides, the PBOC highlighted its proactive approach to reducing financing costs through market-based reforms related to banks’ benchmark lending rates and deposit rates.
The market has always been concerned with the absence of a full-fledged stimulus package from the government. David Rees, Senior Emerging Markets Economist at Schroders, highlights the government’s targeted move and explains, “There’s been a small amount of stimulus, but no big urgency, which has caused disappointment in the market. However, the flip side is that by not going back to its old ways, the government is pursuing what it terms ‘better quality growth’. There’s been a change in the government’s approach to managing the economy.”
New model for supporting the weak property sector
The PBOC also plans to revive the ailing housing market and stabilise it through an enhanced model for property sector development. This new model will include financial support for the building of basic infrastructure, urban villages, and social housing, confirmed the central bank.
Over the recent years, China’s property market has been under constant pressure. There have been several speculations of it following the Lehman way. However, analysts ruled it out. Robert Gilhooly, Senior Emerging Markets Research Economist at Abrdn, stated that the state-owned banking sector has the power to absorb most of the risk emanating from the property sector.
PBOC to also focus on yuan
Meanwhile, policymakers also intend to take control of the rapidly depreciating yuan in both onshore and overseas markets. The PBOC reaffirmed its stance to maintain the stability of the yuan and prevent the risk of excessive fluctuation. The depreciation of the yuan has stoked concerns over capital outflow as China’s economy continues to struggle over a property sector slump, weak consumer spending and exports.
