China outlook: double dragon

China’s November data releases provided further evidence that policy easing to date is gaining traction.

Month-over-month gains in services and industrial production were strong, helping push our China Activity Indicator slightly higher. 

The property sector remains a major concern. And, while new starts have stabilised since June, other key metrics now point to a continued slide, rather than the tentative stabilisation indicated last month. A faster pace of price falls also implies that households are staying on the sidelines. 

Policy continues to take a targeted and incremental approach. Downpayment criteria have been eased in some Tier 1 cities, while the PBOC provided another larger-than-expected liquidity injection in December.

The Central Economic Work Conference (CEWC) concluded with little indication of a major change in policy direction. But the authorities seem to be recognising the need for central government assistance and a coordinated approach to ensure stability while addressing local government debt risks. This more balanced approach suggests that the fiscal backdrop should be marginally more supportive. 

Overall, we remain somewhat cautious about the Year of the Dragon and our 2024 growth forecast remains at 4.4%. 

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