Close-up of Chinese Yuan banknotes with Mao Tse-tung
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China’s recent policy support is aimed at fixing its system and should not be viewed as such Economic stimulus, according to the Asia chief economist and head of research at Société Générale.
“Actually, to be honest, I don’t think anything [that] The events that have happened should be viewed as economic stimulus, they are bridging measures. Even the additional 1 trillion [central government debt] If you compare this amount with the land sales revenue lost due to the housing correction, it is not even enough,” Wei Yao told CNBC Street Signs Asia on Tuesday.
In late October, Chinese authorities announced a rare mid-year overhaul that included the issuance of 1 trillion yuan ($137 billion) in government bonds – one of the biggest changes to the national budget in years. The amount was intended for reconstruction of areas severely affected by natural disasters – such as the historic floods this summer – and for disaster preparedness.
China’s post-Covid recovery stalled for several months after the country abandoned its strict zero-Covid measures late last year. Some of China’s biggest real estate developers are facing serious debt problems as part of Beijing’s broader deleveraging of the once-bloated real estate sector, which directly and indirectly accounts for about a third of China’s economic activity.
“So we’re just coming out of a phase where the government wasn’t as worried about the economy.” [to] Now they are starting to worry and stop the decline,” Yao said.
“It’s an improvement, but at the same time, if you listen to them, they’re not thinking about…stimulus measures. It’s about fixing the system and trying to solve the debt problem – which in some ways is the right thing to do.”
Investors and market watchers have been looking for fresh impetus at two key meetings: the Central Economic Work Conference, an annual policy meeting that lays out the country’s economic and financial agenda and usually takes place in December; and the Third Plenum of the Chinese Communist Party, a meeting usually focused on discussing the country’s economic problems and held in either October or November, a year after a leadership renewal.
Since the Politburo did not set a date for the third plenum at its meeting last week, there are some expectations that it will now only take place in 2024.
PMI divergence
Growth in China’s services sector reached its strongest level since August, a private survey showed on Tuesday. The Caixin China Services Purchasing Managers’ Index stood at 51.5 in November, rising to 50.2 in September from 50.4 in October, according to a Dec. 5 release.
A value above 50 indicates an expansion in activity, while a value below this value indicates a decline.
However, the private survey differs from China’s official PMI. The official non-manufacturing PMI services sub-index for November released last week came in at 49.3, showing a decline for the first time since December 2022.
There was a similar divergence between private and official manufacturing PMIs.
The Caixin reading released on Friday suggested manufacturing expansion in November, coming in at 50.7 from 49.5 in October. On the other hand, the official manufacturing purchasing managers’ index unexpectedly fell to 49.4 in November from 49.5 in October, according to the National Bureau of Statistics.
“We believe the divergence between the NBS and Caixin manufacturing PMIs is mainly due to continued drag on industrial demand from the housing market downturn, as well as slowing activity levels in the traditional manufacturing sectors,” China economists wrote Barclays, led by Jian Chang, issued a note dated December 1st.
They added that the weaker manufacturing PMI and contract services PMI as well as other November data pointed to the fragility of the Chinese economy and a faster slowdown in growth momentum last month.
The official PMI includes more companies operating in heavy industry compared to the Caixin PMI, which covers more consumer-focused companies, Barclays economists said.
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“The economy is still on the cusp of stabilization, but it’s a pretty treacherous path because the system is working against very large downward pressures that are still primarily coming our way.” [from] the real estate sector, and then of course there are all these debt issues that still need to be resolved,” Yao told CNBC on Tuesday.
“I think the story hasn’t changed so much in the sense that it’s an upswing, but it’s a weak one,” she added.
— CNBC’s Evelyn Cheng contributed to this report.