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China’s economic growth manifested across various sectors in November 2023, notwithstanding challenges faced by the nation’s real estate sector. The country’s National Bureau of Statistics reported a 6.6% surge in industrial output last month compared to the corresponding period in the previous year, marking the highest rate of expansion in almost two years.
Additionally, there was a 10.1% year-on-year upturn in retail sales in November, representing the fastest growth rate since May. The growth was primarily led by food services demand rather than goods. Nevertheless, the growth fell short of the 12.5% surge forecasted by experts for the same period.
Furthermore, between January to November of this year, retail sales saw a rise of 7.2% year-on-year. During this same time frame, there was a 2.9% cumulative growth in fixed asset investment in urban regions, slightly below the anticipated 3% expansion. Also, infrastructure investments rose by 5.8% in the first 11 months of 2023, while the country’s manufacturing sector saw a spike of 6.3%.
However, China’s real estate sector continues to remain weak as investments in real estate development declined by 9.4% during this period. China’s new home prices fell for the fifth consecutive month in November as the country’s major real estate developers are still grappling with significant debt challenges.
“Our cautious conclusion from all of this is that China’s recovery is ongoing. But it still looks narrowly based and vulnerable to any further worsening in the real estate sector,” writes Robert Carnell, Regional Head of Research, Asia-Pacific at ING.
According to Carnell, recent policy adjustments aiming to bolster real estate in major cities may not offer the quick solution many anticipate. He adds that the government should establish a robust framework for recovery once demand rebounds.
China’s central bank injects record level of liquidity into banking sector
In a bid to bolster China’s economic growth, the country’s central bank increased liquidity injection through the one-year medium-term lending facility (MLF) loan to financial institutions.
This move comes as 650 bn yuan ($91.48 bn) worth of MLF loans are set to expire this month. The result is a net injection of 800 bn yuan ($113 bn) into the banking system in December, making up the biggest monthly increase on record.
Besides, the PBOC announced that it would maintain the rate of 1.45 tn yuan ($203.97 bn) of one-year MLF loans to certain financial institutions at a steady 2.50%. In a statement, the central bank affirmed that the loan operation aims to sustain ample liquidity in the banking system, countering short-term challenges like tax payments and government bond issuance.
“At the same time, it will appropriately provide mid- and long-term base money,” added the central bank.
Experts had anticipated this move from the PBOC. “Liquidity conditions tightened in October, as a deluge of bond issuance to fund fiscal stimulus and quarter-end cash demand from corporates drove up interbank rates. The most likely outcome is for PBOC to inject more support through open market operations while leaving the MLF rate unchanged,” said Carlos Casanova, Senior economist for Asia at UBP, in a note last month.
Meanwhile, in another attempt to boost economic growth, the Chinese government on November 12, had pledged to moderately strengthen fiscal policy in the coming year recognising challenges such as inadequate effective demand, overcapacity in certain sectors, and other associated risks.
“In 2024, central SOEs (state-owned enterprises) will give full play to the ‘three roles’ of technological innovation, industrial control, and safety support, and actively serve the country’s major strategies,” it said.
All in all, the IMF expects China’s economic growth to reach 4.6% in 2024 after a 5.4% economic expansion this year. “Broad-based and pro-market structural reforms aimed at boosting productivity, supporting rebalancing and decarbonisation would support new engines of growth, and mitigate the negative effects of ageing, diminishing returns on investment, and geoeconomic fragmentation,” said the global lender.
