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Mixed economic signals in China

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2023-11-15

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In October, there were tentative signs of an uptick in Chinese economic activity. The final data dump for the month showed higher retail sales, along with an upward blip in production. However, this positive news was counteracted by yet another drop in investment, particularly in the property sector, which continues to struggle.

According to China's National Bureau of Statistics, property investment fell at an annual rate of 9.3% in January-October, slightly worse than the 9.1% decline in the first nine months of the year. Property sales by floor area fell by 6.8% year-on-year during the same period, and new construction starts measured by floor area were down by 23.2% year-on-year. Additionally, new funds raised by China's property developers decreased by 11% year-on-year.

While there may be some slight improvement, many property developers are facing financial challenges, with some being insolvent or nearly insolvent. This situation suggests that the property sector in China has yet to recover fully, offsetting the benefits of improvements in other areas like manufacturing, mining, and utilities.

On a positive note, China's retail sales in October exceeded expectations, rising by 7.6% year-on-year. This suggests strong consumer demand, even in the face of lower food prices, especially pork. Car sales, especially electric vehicles (EVs), remained robust, although double-digit gains seem to be a thing of the past.

Consumer and producer prices experienced deflation in the last month, and the slight improvement in production did not prevent a fall in exports. China's industrial production increased by 4.6% in October, surpassing the 4.5% gain in September and beating market forecasts of 4.4%. This marked the fastest pace of expansion since April, with growth in mining and manufacturing, albeit a slowdown in electricity, crude steel, heat, gas, and water production and supply. On a monthly basis, industrial output rose by 0.4%.

Finally, unemployment in urban areas remained stable at 5% in October.

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