(Bloomberg) — China’s central bank took steps to support markets just as data showed the economy grew at its slowest pace in six quarters. This indicates that the government plans to continue stimulus measures to draw a line under the slowdown.
Most read from Bloomberg
The People’s Bank of China announced more details of its measures to stimulate capital markets, minutes after authorities released figures showing China’s slowdown had worsened in the third quarter. At a separate event in Beijing, PBOC Governor Pan Gongsheng identified the real estate and stock markets as key challenges in the economy that require targeted policy support.
Coordinated or not, the moves by the PBOC and its governor appeared to bolster hopes that Beijing would do what is necessary to ensure the country meets its 2024 growth target of around 5%. Although growth was slower than in previous quarters, better-than-expected September data offered tentative signals that the economy has bottomed out.
The likelihood that China will achieve its growth target “now appears very high,” said Jacqueline Rong, chief China economist at BNP Paribas SA. “Only a mild rebound in the fourth quarter will do the job.”
China’s benchmark domestic stock CSI 300 Index recovered from earlier losses to close 3.6% higher after the central bank launched a relending facility for listed companies and major shareholders to buy back shares. Stocks were also boosted by President Xi Jinping’s call for efforts to achieve this year’s economic targets and financial support for technology, with chipmaker Semiconductor Manufacturing International Corp. achieved a profit of 20%.
What Bloomberg Economics says…
“Given the strength and breadth of the policy response in recent weeks, the economy has likely bottomed out. The government is now likely to focus on implementation, with a particular emphasis on ensuring that local officials implement the budget expenditures budgeted for this year.”
-Chang Shu and Eric Zhu
Read the full note here.
Friday’s data painted a mixed economic picture for the past quarter.
Gross domestic product rose 4.6% from a year earlier in the July to September period, data from the National Bureau of Statistics showed, bringing growth for the first nine months to 4.8% comes – the lower end of China’s annual growth target.
Things appeared to be turning for the better during the latter part of the period, with retail sales accelerating in September, growing 3.2% after growing 2.1% the month before.
The better-than-expected consumption measure was likely boosted by government subsidies for upgrading consumer goods. For home appliances, sales rose 21% from a year ago, compared to a 3% increase in the previous month. The higher subsidies for car purchases also paid off, with car sales falling for six months.
“The economy will perform better in the fourth quarter given the new stimulus measures,” said Larry Hu, head of Chinese economics at Macquarie Group Ltd.
The trade-in program for appliances and goods is part of China’s stimulus measures, including interest rate cuts, with the elite Politburo led by Xi increasing pressure with a promise to stabilize the beleaguered real estate sector.
The series of measures sparked a historic stock rally and prompted banks including Goldman Sachs Group Inc. to raise their forecasts for Chinese growth. But there has been growing skepticism about whether authorities are willing to deploy more fiscal firepower to turn the economy and markets around.
Investors now expect Chinese lawmakers to approve additional budget or debt sales to finance government spending at a meeting this month, after authorities promised budget support.
At a forum in Beijing, PBOC’s Pan reiterated that the monetary authority will make a reasonable recovery in prices a key policy consideration. A broad measure of prices fell for a sixth quarter, data showed on Friday, extending the economy’s deflation streak, the longest since 1999.
In addition to retail sales, industrial production and fixed investment increased in September, and unemployment fell to 5.1%, the lowest level since June.
However, new home prices fell for the sixteenth month, falling at almost the same pace as in August.
“There is still a lack of stabilization in the real estate market, which indeed points to the need for further policy easing,” said Xiaojia Zhi, chief China economist at Credit Agricole.
The NBS said there is reason for caution despite improvements in key indicators as stimulus measures are rolled out, citing an “increasingly complex and grim” external environment and the need to strengthen the economy’s foundations.
Data released before Friday underscored these challenges. Exports slowed sharply in September, blunting a recovery in trade that had been a high point for the economy. Deflationary pressures continued to build, while consumer prices remained weak and factory prices fell for 24 consecutive months.
Economists have urged Beijing to boost consumer spending to avoid a spiral of falling prices, which could risk a self-reinforcing cycle of falling spending, shrinking business revenues and job losses. But authorities have shown little urgency to boost consumption with direct stimulus measures or large-scale benefits, which Xi has long resisted over concerns about what he calls “welfarism.”
What’s wrong with the Chinese economy? What does Xi do?: QuickTake
China appears to be focusing its fiscal policy so far on curbing local debt risks, with Finance Minister Lan Fo’an promising what he described would be the biggest effort in years to bring hidden debt onto local governments’ balance sheets.
The strategy aims to reduce the debt burden on authorities by reducing interest costs and delaying loan repayments. This frees up money and gives local governments more opportunities to stimulate economic growth.
“The improvement in growth momentum of key monthly indicators may provide some comfort to policymakers,” said Louis Kuijs, chief Asia-Pacific economist at S&P Global Ratings. “However, I do not think that a month of slightly better economic growth data can justify reducing policy support for growth, especially at a time when deflation risks have increased.”
–With help from Tian Chen, James Mayger, and Jing Li.
(Updates on market closing and comments from Xi Jinping in the fifth paragraph)
Most read from Bloomberg Businessweek
©2024 BloombergLP
