Wednesday saw China posting mixed economic reports for October. There was weakened retail sales, which indicated a sluggish consumption pace, even as a spike in the industrial output and investment hinted that supportive efforts by the Chinese government may starting to show results.
The data released on Wednesday along with the weak credit data the previous suggest that the world’s second-largest economy will continue to slowdown in the next coming quarters.
This is considered the weakest economic growth since the global financial crisis and Chinese policymakers are hastening billion-dollar road and rail projects, compelling banks to lend more and slashing taxes to ease restraints on businesses.
More supportive measures are expected to come.
“Policy measures, including funding support for private firms, need some time to show results. GDP growth in the fourth quarter could dip below 6.5 percent,” said Wang Jun, who is the chief economist at Zhongyuan Bank based in Beijing.
The manufacturing has received some support from firms with resilient exports as they rush to move goods to the United States ahead of higher tariff rates, in the midst of persistent trade tensions between the top two largest economies of the world.
As such, investors are hoping for better results out of trade talks between US President Donald Trump and his Chinese counterpart Xi Jinping later this month.
However, the bigger concern is within the Asian country, where real estate keeps cooling down, slowing domestic consumption amid increasing household debt. The real estate sector is a major driver in the Chinese economy.
Retail sales increased 8.6 percent in October from a year earlier, according to the National Bureau of Statistics. This is the slowest since May. Analysts had anticipated only a marginal slip from 9.2 percent in September.
An extended sluggishness in auto sales has put the world’s biggest car market on the verge of its first annual contraction since at least 1990, while garment sales are growing at the weakest pace in over two years, indicating a dwindling consumer confidence.
“There are myriad reasons for this step-down in consumer spending: the increase in mortgage debt is eating into disposable income, investment returns are falling , and the closure of many online lenders is cutting off a key source of consumer finance,” said Everbright Sun Hung Kai in a note.
Beijing is looking to offset the drag by cutting import tariffs and income tax. As a matter of fact, it has been reported that it was considering making mortgage payments tax-exempt. However, those policies may not have much impact, Everbright said.
E-commerce giant Alibaba Group Holding Ltd posted a record 213.5 billion yuan ($30.70 billion) in sales on Sunday from China’s Singles’ Day, which is an annual 24-hour buying craze. However, the space for growth slipped to its slowest rate in the event’s 10-year history.
Sluggish retail sales were caused by seasonal factors, said Liu Aihua, who is a spokeswoman at the statistics bureau.
On the other hand, analysts noted sales growth has been on a downward direction since March.
“Almost all categories in retail sales disappointed in October. We think the government’s fiscal stimulus came in too late, and people now tend to save more and spend less,” said Iris Pang, Greater China economist at ING bank in Hong Kong.
“We expect the effect of the personal income tax cut will start to be felt in November, when retail sales may gain some traction.”