China’s industrial output surges in early 2024, offers relief to policymakers

Industrial output in China surged by 7.0 per cent year-on-year during the January-February period, as revealed by data released on Monday.

This growth rate marks an acceleration from the 6.8 per cent pace observed in December and exceeded expectations, signaling a promising start for the year and providing some relief to policymakers.

The National Bureau of Statistics (NBS) reported that the figure surpassed forecasts from a Reuters poll of analysts, who had anticipated a 5.0 per cent increase.

Retail sales, which serve as a barometer of consumption levels, increased by 5.5 per cent in the first two months of the year, compared to a 7.4 per cent rise in December.

While this growth rate moderated slightly, it still outpaced analysts’ expectations, who had forecasted a 5.2 per cent increase.

This suggests that consumer spending remains relatively strong despite the deceleration.

Fixed asset investment, an important gauge of overall economic activity, expanded by 4.2 per cent during the same two-month period compared to the previous year.

This growth rate exceeded expectations for a 3.2 per cent rise and surpassed the 3.0 per cent growth recorded for the entirety of 2023. The data indicates increased investment sentiment and activity in the early months of 2024.

China’s housing market shows signs of improvement amid government interventions

China’s housing market, which has been grappling with a prolonged downturn, showed signs of tempered decline as the new year commenced, boosted by government interventions aimed at stabilising the sector.

Despite this, analysts remain cautious about prematurely declaring an end to the downturn. National Bureau of Statistics (NBS) data revealed that property investment in China decreased by 9.0 per cent year-on-year in the first two months of 2024, a notable improvement from the 24.0 per cent decline recorded in December 2023.

Property sales also experienced a milder contraction, with sales by floor area registering a 20.5 per cent slide in January-February compared to the previous year, compared to a 23.0 per cent fall in December.

However, official figures from last week indicated that the sector continues to grapple with challenges, as home prices saw a 0.3 per cent month-on-month decline in February, consistent with the trend observed in January.

Nie Wen, an economist at Hwabao Trust, emphasised that despite the slight improvement in property investment, the real estate sector remains on a downward trajectory.

Nie highlighted that developers are still facing challenges with cash flow, indicating that the sector’s struggle is far from over.

However, he noted that the phase with the most significant negative impact on the economy may have passed, raising questions about when the sector will reach its bottom.

In response to the housing market’s fragility, Chinese authorities have intensified efforts to revitalise the sector following a regulatory crackdown on developer leverage that triggered a liquidity crisis.

In January, the government introduced a “whitelist” mechanism to channel funds from state banks into local property projects deemed justifiable for financing support by city governments.

Additionally, China announced its largest reduction in benchmark mortgage rates last month in a bid to prop up the sector.

Despite these measures, market sentiment remains subdued, with home buying, financing, and construction starts for real estate firms continuing to decline.

Economists at HSBC highlighted the need for further support for the property sector, advocating for policies aimed at removing home purchase restrictions in more cities and directing government support towards boosting public housing supply.

China’s economy shows resilience in early 2024 amid structural challenges

China’s economy demonstrated resilience at the beginning of 2024, as factory output and retail sales exceeded expectations in the January-February period, offering a positive start for the year and providing some relief to policymakers.

Despite ongoing concerns regarding weakness in the property sector, recent data, including better-than-expected exports and consumer inflation indicators, have bolstered hopes of reaching China’s ambitious 5.0 per cent GDP growth target for the year.

According to data released by the National Bureau of Statistics (NBS), industrial output surged by 7.0 per cent in the first two months of the year, surpassing analysts’ forecasts and marking the quickest growth in almost two years.

Retail sales, a key indicator of consumption, rose by 5.5 per cent, although this was slightly slower than the increase observed in December.

The eight-day Lunar New Year holiday in February saw a robust return of travel, supporting revenue in the tourism and hospitality sectors and driving a 3 per cent growth in oil refinery throughput to meet increased demand for transport fuels.

According to Reuters, Louise Loo, a China economist at Oxford Economics, cautioned that while the activity data showed stabilisation at the start of the year, there are reasons to believe that some of the strength could be temporary.

Loo highlighted that festivities-related spending during the Lunar New Year may have buoyed consumer sentiment temporarily, but sustaining robust consumer spending throughout the year without decisive consumption-related stimulus measures could be challenging.

Despite the positive economic indicators, China continues to face structural challenges, particularly in its property sector, which remains a significant drag on the economy and confidence.

Goldman Sachs economists emphasised the need for further policy easing, particularly on the demand side, to secure China’s ambitious growth target for the year.

They noted that while China’s sequential growth momentum remained solid in the first quarter, more policy support, especially in areas such as fiscal stimulus, housing, and consumption, is necessary.

Despite the challenges, there are signs of resilience in certain areas of the economy. Fixed asset investment expanded by 4.2 per cent in the first two months of 2024, surpassing expectations.

Notably, private investment reversed its decline from the previous year, growing by 0.4 per cent during the same period.

Premier Li Qiang and central bank governor Pan Gongsheng have pledged to address structural challenges and implement further measures to stabilise growth.