China’s latest hard data were a mixed bag, but they were more encouraging than the PMIs. Retail sales and services saw notable improvement, and, on balance, the three-month data flow has become more reassuring. 

The property sector remains a major vulnerability, but a range of key activity metrics have at least stabilised over the past four to five months. Similarly, funding for developers has stopped falling.

A rumoured RMB 1 trillion funding programme for urban redevelopment would help provide a firmer foundation, but it remains unclear as to what steady-state we should expect. Indeed, even a stabilisation of ‘pipeline’ indicators could still imply a sizeable drag via fixed investment on GDP.

Policy now appears to have gained more traction than we had previously estimated. Our China Financial Conditions Index (CFCI) has been revised up – partly reflecting an updated real equilibrium interest rate (r*) estimate – suggesting that easing to date should do more to support growth heading into 2024.

Confirmed further stimulus – via an RMB 1 trillion issuance of special central government debt – and November’s injection of medium-term lending facility (MLF) liquidity – estimated to be roughly equivalent to a 25bps reserve requirement ratio (RRR) cut – will help ease financial conditions more. This could be amplified by urban redevelopment spending, if confirmed. 

As a result, while we remain somewhat cautious about the outlook for 2024 and beyond, our latest 2024 growth forecast has been revised up (4.4%, +0.2ppts). 

 

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