China's economy has been grappling with a sharp deceleration in growth, and the latest data has reinforced the need for immediate intervention. The third quarter of 2024 saw the slowest economic expansion in six quarters, with GDP growth at 4.6% year-over-year. This brings overall growth for the first nine months of 2024 to 4.8%, teetering on the lower end of the government’s annual target of around 5%.
In response to these figures, China's central bank, the People’s Bank of China (PBOC), revealed details of new stimulus measures designed to support capital markets and counter the economic slowdown. PBOC Governor Pan Gongsheng identified real estate and stock markets as critical areas requiring targeted support to stabilize the economy, signaling the government's ongoing commitment to boosting growth.
Measures to Boost Investor Confidence
The PBOC’s interventions have reignited hope for economic recovery. Shortly after the release of the GDP data, the central bank introduced a re-lending facility aimed at enabling listed companies and major shareholders to repurchase shares, a move that helped lift market sentiment. The CSI 300 Index, which tracks China’s top onshore stocks, rebounded sharply, gaining as much as 3.2% after the announcement.
Pan’s comments were part of a broader push by Chinese authorities to reassure investors and demonstrate that Beijing remains committed to reaching its growth target. "The probability of China achieving its growth goal now looks very high," remarked Jacqueline Rong, chief China economist at BNP Paribas SA. Even a modest rebound in the fourth quarter, she added, would suffice to meet the 5% goal for 2024.
Tentative Signs of Improvement
While overall growth remains subdued, some key indicators showed signs of recovery in September. Retail sales, for instance, saw a 3.2% increase year-over-year, up from 2.1% in August. The increase in consumption was largely attributed to government subsidies, particularly in sectors like home appliances and automobiles. Sales of home appliances surged by 21% compared to the same period last year, reflecting the impact of stimulus measures. Auto sales also snapped a six-month decline, helped by subsidies for car purchases.
In addition to retail, other sectors posted stronger results. Industrial production and fixed-asset investment picked up pace in September, and the unemployment rate dropped to 5.1%, the lowest level since June.
Challenges in the Real Estate Market
Despite the more encouraging data in some sectors, the real estate market remains a significant area of concern. New home prices continued their decline for the 16th straight month, signaling persistent instability. Real estate, which plays an outsized role in China's economy, has been one of the biggest drags on growth this year. “There is still a lack of stabilization in the property market,” said Xiaojia Zhi, chief China economist at Credit Agricole, underscoring the need for further policy support in this crucial sector.
The property downturn has raised questions about whether the current measures will be sufficient to restore confidence in this critical sector. While the Politburo, led by President Xi Jinping, has pledged to stabilize the real estate market, skepticism remains about the willingness of the government to deploy more aggressive fiscal tools, especially given concerns over local government debt.
Policy Support: A Focus on Execution
Economists agree that China’s economic policy is at a crossroads, with much hinging on how well local officials implement the fiscal stimulus that has been allocated. “Given the force and breadth of the policy response in recent weeks, the economy has likely bottomed out,” said Chang Shu and Eric Zhu of Bloomberg Economics. The government's primary focus will now be ensuring that fiscal spending is delivered as budgeted, particularly in sectors like infrastructure and public services that can help drive demand.
However, deflationary pressures remain a concern. A broad measure of prices has fallen for six consecutive quarters, and the consumer price index remains weak, signaling the persistence of deflation risks. This pressure could potentially erode growth if not addressed through sustained stimulus measures aimed at boosting consumer demand.
Outlook for the Fourth Quarter
Looking ahead, most experts are cautiously optimistic about the final quarter of 2024. While challenges remain, including deflation and the ongoing instability in real estate, the recent wave of stimulus and policy support appears to be setting the stage for improved economic performance. “The economy will perform better in the fourth quarter given the new stimulus measures,” said Larry Hu, head of China economics at Macquarie Group Ltd.
Still, the road to recovery is far from guaranteed. For China to maintain sustainable growth beyond 2024, it will need to continue navigating the complex landscape of local debt risks, a sluggish global economy, and ongoing challenges in its domestic markets.
China’s leadership is now expected to consider additional budgetary and debt measures to fund public spending, with a crucial government meeting slated for later this month. As fiscal and monetary policies converge, the fourth quarter will be a pivotal test of the effectiveness of China’s stimulus strategy in the face of a challenging global environment.
Balancing Challenges and Stimulus
While China's recent stimulus measures have provided a lifeline to its struggling markets, significant challenges remain. The government’s ability to deliver on its growth target will depend on how effectively it can address issues in key sectors like real estate, while managing local debt and deflation risks. As China prepares for the final stretch of the year, the focus will be on ensuring that these policies are implemented with precision, keeping the economy on track toward recovery.
Weiliang
Miyuki
Weatherly