China reaction: Consumer disappointed while industries impressed

  • 18 Marzo 2024 (3 min read)
The first monthly output data of the year brought mixed messages.
Retails sales did not reflect the strong trend of holiday travel, decelerating to 5.5% yoy in Jan-Feb (Dec 2023: 7.4%).
Industrial production beat the market expectation, growing by 7.0% yoy in the first two months of 2024 (Dec 2023: 6.8%). The significant improvement among private enterprises could signal a recovery in the labour market in the coming months.
Fixed asset investment edged up slightly to 4.2% in Jan-Feb, from 4.1% in December 2023, most likely following instruction from the authorities, as private investment remained sluggish.
Overall, we revised our GDP forecast to 4.6% for 2024, up by 0.1 percentage point. Although risks to our forecast are to the upside -- if the current fiscal stimulus package implementation is full and timely and further stimulus underpins the government’s around 5% target.

A new year celebration without much consumption 

China’s statistics office released the first monthly output data of the year, highlighting a continued decelerating trend in the consumer sector. Retail sales slowed to 5.5% yoy in January and February (Jan-Feb) combined, from 7.4% in December. Accounting for seasonality, it grew by 0.2% mom in January but 0.0% in February. Consumer goods spending slowed to 4.6% yoy in the first two months of the year, from 5.8% in December 2023. Catering spending also lost momentum, increasing by 12.5% yoy in Jan-Feb combined from 20.4%. Services overall grew by 12.3%, marking the slowest pace since H2 2023. However, automobile and mobile phones gained momentum, growing by 8.7% and 16.2%, respectively, compared to the same period last year (Dec 2023: 4.0% and 11.0%), partly as a result of holiday promotions. Chinese consumers started the year with a sluggish performance, continuing the negative sentiment from last year. Although Lunar New Year boosted consumption for certain goods, the overall picture remained worrisome. Consumers continue to face pressures from the gloomy labour market (where unemployment was recorded rising to 5.3% from 5.0% before) and the ongoing property price correction, making a near-term rebound in private consumption unlikely without further stimulus. Even though weak demand has been adding deflationary pressure to the economy, risking a debt-deflation spiral, government officials have so far failed to address the issues of weak demand and provide effective support during the annual National People’s Congress that concluded last week. Looking ahead, we believe a boost to consumer confidence is what the economy most needs. However, current stimulus is more focused on infrastructure capital expenditure. This risks weak CPI inflation persisting across the year.

Industrial sectors maintain strong momentum

Chinese industrial value-added grew by 7.0% yoy in the first two months of the year, up from 6.8% in December last year, surpassing market expectations for 5.3%. On a seasonally adjusted basis, industrial production grew by 0.6% mom in February, following an expansion of 1.2% in January. Industrial production by private enterprises saw a significant improvement, growing by 6.5% yoy in Jan-Feb combined, up from 2.8% in December 2023. Manufacturing advanced by 7.7% yoy (Dec 2023: 5.0%), while manufacturing for computers, mobile phones, and other electronic equipment surged by 14.6% yoy in the Jan-Feb combined, from 2.6% in December last year, benefiting from an upward tech cycle.

The strong performance in the industrial sectors is a bright spot for the economy and in the case electronics looks likely to combined the increase in (discounted) consumer demand and stronger exports. The surge in the performance of private enterprises is particularly encouraging and could indicate that an improvement in the labour market, especially for migrant workers, is underway.

Investment edged up, following the stimulus plan

Fixed asset investment (FAI) in China rose by 4.2% at the start of the year, marginally up from 4.1% in December. Infrastructure and manufacturing posted the biggest gains, growing by 9.0% and 9.4% respectively (Dec 2023: 10.7% and 8.2% respectively). Amid the ongoing downturn in the sector, investment in property development continued its decline, dropping by 9.0% after a decrease of 12.5% in December last year. As expected, most investment came from the state-owned enterprises (SOEs), which grew by 7.3% yoy. Private enterprises remained much more cautious with investment here totalling a meagre 0.4% yoy.

Indeed, the upward trend in FAI followed Beijing’s plan, which puts investment under the spotlight. However, the divergence in investment attitude between SOEs and private enterprises underscores the pessimism among the private sector. Moreover, with much of SoE investment likely to be by diktat, rather than return-driven investment, it risks building overcapacity in some sectors and adding to low returns on investment, adding debt burdens to these enterprises.

First impressions – mixed feelings

The first data for the year brought a mixed picture across China’s economy. Private consumption, largely overlooked by the authorities, remained a blockage in the economy. However, the rebound in industrial production added some positivity, which could signal a future recovery in the labour market. Investment, as directed by Beijing, holds the responsibility for most of the year’s heavy and continues to focus on infrastructure and the manufacturing sector.

Given the current performance in the economy, the growth target of "around 5%" for the year seems ambitious. However, as explained by Beijing’s stimulus package, it can be achieved if all goes as planned (or if further stimulus is added). Taking everything into consideration, we currently forecast a growth rate of 4.6% for 2024, up by 0.1 percentage point compared to our view in November last year, although acknowledge that risk lie to the upside as Beijing monitors stimulus with its goals in mind. Moreover, the current stimulus plan, if fully implemented, may exacerbate the issue of overcapacity, add to disinflationary pressures and increase the debt burden in the future.


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