China's economy continues to face significant headwinds as factory activity shrank for the fifth consecutive month in September, and the services sector experienced a sharp slowdown, underscoring the need for more aggressive stimulus measures. Despite Beijing’s recent stimulus efforts, the data reveals that both manufacturing and consumer activity are struggling to rebound, putting pressure on policymakers to implement even bolder initiatives to reach the country’s 2024 growth target of around 5%.
According to data released by the National Bureau of Statistics (NBS), the purchasing managers' index (PMI) for manufacturing edged up to 49.8 in September from 49.1 in August. Although this was the highest reading in five months and beat market expectations, it remained below the critical 50-point mark, which separates expansion from contraction. This data points to ongoing challenges in China's industrial sector, which has yet to see meaningful recovery.
The slowdown is not confined to manufacturing alone. The services PMI also dipped to 49.9 in September, signaling the first contraction in the sector since December 2022. This is particularly concerning given that services had been a bright spot for China’s economy following the COVID-19 pandemic. Zhao Qinghe, an NBS statistician, attributed part of the services slowdown to seasonal factors like the end of the summer travel season and extreme weather events, including typhoons. However, the drop in consumer demand reflects a broader, more systemic weakness that is troubling for policymakers.
New Stimulus Measures: Will They Be Enough?
In response to the continued economic struggles, Chinese authorities last week rolled out their most aggressive stimulus package since the pandemic, sparking optimism in the stock markets. Chinese equities posted their best weekly performance in nearly 16 years, extending their rally into Monday as investors anticipated more supportive measures. These initiatives include loosened property market curbs in major cities like Shanghai and Shenzhen, along with new directives for banks to lower mortgage rates on existing home loans by October 31.
Yet, despite these measures, economists remain cautious. While the PMIs offered some glimmers of hope, the underlying issues, particularly weak domestic demand and a cooling global trade environment, present significant obstacles. Zhiwei Zhang, chief economist at Pinpoint Asset Management, noted that the recent property-related policies, though helpful, are unlikely to have a major macroeconomic impact. “From a macro perspective, these policies are not that important, as these cities account for a small share of the national property market,” Zhang said. He argued that addressing China’s broader economic challenges will require more robust fiscal policies.
Indeed, economists argue that China's central bank and top financial regulators must implement additional measures to stimulate growth. On Sunday night, authorities announced more initiatives aimed at stabilizing the housing market. These include instructions for banks to lower mortgage rates, alongside a reported 2 trillion yuan ($285.20 billion) bond issuance package aimed at tackling local government debt problems and boosting consumer spending.
Persistent Consumer Weakness
One of the most pressing concerns for China is the ongoing weakness in consumer demand. The drop in the services PMI highlights the challenges faced by businesses that rely on discretionary spending, from restaurants and hotels to entertainment services. The upcoming Golden Week holiday, which kicks off in early October and typically serves as a barometer for consumer sentiment, will be closely watched by analysts.
Zhou Hao, chief economist at Guotai Junan International, emphasized the importance of Golden Week as a potential turning point. “Attention now shifts to the equity market, particularly property sales and consumption during Golden Week,” he said. However, whether the holiday can significantly boost consumer confidence remains uncertain.
Part of the problem is that Chinese households remain cautious about spending amid broader economic uncertainties. The property sector, which has long been a critical pillar of China’s economic growth, is still facing a downturn, and this has dampened consumer sentiment. Although some cities, such as Guangzhou, have lifted restrictions on home purchases to reignite interest in the property market, it is unclear whether these measures will translate into a sustained recovery.
The Role of Infrastructure and Investment
On the bright side, China’s official construction PMI showed a slight increase in September, rising to 50.7 from 50.6 in August. This reflects the government’s efforts to stimulate infrastructure spending, which has been a key component of its economic strategy. Last week, Reuters reported that China plans to raise 1 trillion yuan via special bond issuances to support local governments, fund infrastructure projects, and subsidize a consumer goods replacement program aimed at boosting auto sales and home appliance purchases.
These investments are part of a broader strategy to lift domestic demand and support the country’s industrial base. While such measures may provide a short-term boost to growth, analysts caution that they may not be enough to tackle the deeper structural issues plaguing the economy.
Global Trade Pressures and Policy Outlook
Another challenge facing China is the increasingly hostile global trade environment. As one of the world's largest exporters, China has been hit hard by slowing demand from key trading partners, particularly in Europe and the United States. This has exacerbated the difficulties faced by manufacturers, many of whom rely heavily on foreign orders to sustain operations.
To navigate these challenges, economists argue that Beijing will need to take a more comprehensive approach to stimulus. In addition to the fiscal measures already in place, further easing of monetary policy and more targeted support for struggling industries may be necessary to stabilize growth.
With only three months left in the year, China’s path to reaching its 2024 growth target is fraught with challenges. While recent stimulus measures have provided some relief, the underlying issues of weak consumer demand, a sluggish property market, and external trade pressures remain significant obstacles. Policymakers will need to carefully balance short-term interventions with longer-term reforms to ensure a sustainable economic recovery.
As the government continues to roll out additional support measures, all eyes will be on key economic indicators like property sales and consumer spending during Golden Week to gauge the effectiveness of these policies. However, the road to recovery is likely to be slow and complex, with deeper structural reforms needed to address the root causes of China’s economic slowdown.
(Source:www.business-standard.com)
According to data released by the National Bureau of Statistics (NBS), the purchasing managers' index (PMI) for manufacturing edged up to 49.8 in September from 49.1 in August. Although this was the highest reading in five months and beat market expectations, it remained below the critical 50-point mark, which separates expansion from contraction. This data points to ongoing challenges in China's industrial sector, which has yet to see meaningful recovery.
The slowdown is not confined to manufacturing alone. The services PMI also dipped to 49.9 in September, signaling the first contraction in the sector since December 2022. This is particularly concerning given that services had been a bright spot for China’s economy following the COVID-19 pandemic. Zhao Qinghe, an NBS statistician, attributed part of the services slowdown to seasonal factors like the end of the summer travel season and extreme weather events, including typhoons. However, the drop in consumer demand reflects a broader, more systemic weakness that is troubling for policymakers.
New Stimulus Measures: Will They Be Enough?
In response to the continued economic struggles, Chinese authorities last week rolled out their most aggressive stimulus package since the pandemic, sparking optimism in the stock markets. Chinese equities posted their best weekly performance in nearly 16 years, extending their rally into Monday as investors anticipated more supportive measures. These initiatives include loosened property market curbs in major cities like Shanghai and Shenzhen, along with new directives for banks to lower mortgage rates on existing home loans by October 31.
Yet, despite these measures, economists remain cautious. While the PMIs offered some glimmers of hope, the underlying issues, particularly weak domestic demand and a cooling global trade environment, present significant obstacles. Zhiwei Zhang, chief economist at Pinpoint Asset Management, noted that the recent property-related policies, though helpful, are unlikely to have a major macroeconomic impact. “From a macro perspective, these policies are not that important, as these cities account for a small share of the national property market,” Zhang said. He argued that addressing China’s broader economic challenges will require more robust fiscal policies.
Indeed, economists argue that China's central bank and top financial regulators must implement additional measures to stimulate growth. On Sunday night, authorities announced more initiatives aimed at stabilizing the housing market. These include instructions for banks to lower mortgage rates, alongside a reported 2 trillion yuan ($285.20 billion) bond issuance package aimed at tackling local government debt problems and boosting consumer spending.
Persistent Consumer Weakness
One of the most pressing concerns for China is the ongoing weakness in consumer demand. The drop in the services PMI highlights the challenges faced by businesses that rely on discretionary spending, from restaurants and hotels to entertainment services. The upcoming Golden Week holiday, which kicks off in early October and typically serves as a barometer for consumer sentiment, will be closely watched by analysts.
Zhou Hao, chief economist at Guotai Junan International, emphasized the importance of Golden Week as a potential turning point. “Attention now shifts to the equity market, particularly property sales and consumption during Golden Week,” he said. However, whether the holiday can significantly boost consumer confidence remains uncertain.
Part of the problem is that Chinese households remain cautious about spending amid broader economic uncertainties. The property sector, which has long been a critical pillar of China’s economic growth, is still facing a downturn, and this has dampened consumer sentiment. Although some cities, such as Guangzhou, have lifted restrictions on home purchases to reignite interest in the property market, it is unclear whether these measures will translate into a sustained recovery.
The Role of Infrastructure and Investment
On the bright side, China’s official construction PMI showed a slight increase in September, rising to 50.7 from 50.6 in August. This reflects the government’s efforts to stimulate infrastructure spending, which has been a key component of its economic strategy. Last week, Reuters reported that China plans to raise 1 trillion yuan via special bond issuances to support local governments, fund infrastructure projects, and subsidize a consumer goods replacement program aimed at boosting auto sales and home appliance purchases.
These investments are part of a broader strategy to lift domestic demand and support the country’s industrial base. While such measures may provide a short-term boost to growth, analysts caution that they may not be enough to tackle the deeper structural issues plaguing the economy.
Global Trade Pressures and Policy Outlook
Another challenge facing China is the increasingly hostile global trade environment. As one of the world's largest exporters, China has been hit hard by slowing demand from key trading partners, particularly in Europe and the United States. This has exacerbated the difficulties faced by manufacturers, many of whom rely heavily on foreign orders to sustain operations.
To navigate these challenges, economists argue that Beijing will need to take a more comprehensive approach to stimulus. In addition to the fiscal measures already in place, further easing of monetary policy and more targeted support for struggling industries may be necessary to stabilize growth.
With only three months left in the year, China’s path to reaching its 2024 growth target is fraught with challenges. While recent stimulus measures have provided some relief, the underlying issues of weak consumer demand, a sluggish property market, and external trade pressures remain significant obstacles. Policymakers will need to carefully balance short-term interventions with longer-term reforms to ensure a sustainable economic recovery.
As the government continues to roll out additional support measures, all eyes will be on key economic indicators like property sales and consumer spending during Golden Week to gauge the effectiveness of these policies. However, the road to recovery is likely to be slow and complex, with deeper structural reforms needed to address the root causes of China’s economic slowdown.
(Source:www.business-standard.com)