By He Jun
On November 15, China’s National Bureau of Statistics released the latest economic data for October. From the data, the economic performance in the first month of the fourth quarter can essentially reflect the overall economic situation for the entire quarter, indicating that the general framework of the country’s economy in 2023 has been largely determined.
In terms of industry, the value-added of industries above the designated size increased by 4.6% year-on-year (y-o-y) in October, accelerating by 0.1 percentage points compared to the previous month. Looking at three major categories, the value-added of the mining industry increased by 2.9% y-o-y, manufacturing grew by 5.1%, and the production and supply of electricity, heat, gas, and water increased by 1.5%. By economic type, the value-added of state-owned holding enterprises increased by 4.9% y-o-y; shareholding enterprises grew by 5.6%, foreign and Hong Kong, Macao, and Taiwan-invested enterprises grew by 0.9%, and private enterprises increased by 3.9%. In terms of products, the output of solar cells, service robots, and integrated circuit products increased by 62.8%, 59.1%, and 34.5% y-o-y, respectively. From January to October, the value-added of industries above a designated size increased by 4.1% y-o-y. From January to September, the total profit of industrial enterprises above the designated size nationwide decreased by 9.0% y-o-y. In October, the Purchasing Managers’ Index (PMI) for the manufacturing industry was 49.5%, while the business activity expectation index was 55.6%.
It should be pointed out that the industrial sector is experiencing a slower recovery this year. The overall Chinese economic situation is not exactly favorable, coupled with the global restructuring of the supply chain and the relocation of industrial chains, resulting in mediocre performance in the country’s domestic industry. The growth rate of industrial value-added stabilized in October; at the same time, given the industrial downturn in the last two months of the previous year, there is a possibility of a slight increase in industrial value-added data in the last two months of this year. The annual growth rate of value-added in large-scale industries may exceed 4.1%. Yet, noteworthily the profits of industrial enterprises are in negative growth, and they may not necessarily turn positive for the whole year. This year, the challenges faced by enterprises are evident, particularly in the industrial sector.
Figure 1: Year-on-year Growth Rate of Value-Added in Industries above Designated Size
In terms of consumption, in October, the total retail sales of social consumer goods reached RMB 43,333 billion, a y-o-y increase of 7.6%, accelerating by 2.1 percentage points compared to the previous month. By consumption type, retail sales of goods amounted to RMB 38,533 billion, with a y-o-y growth of 6.5%, while F&B revenue reached RMB 480 billion, marking a y-o-y growth of 17.1%. Among the retail sales of goods in enterprises above the designated size, sports and entertainment goods, communication equipment, automobiles, and precious metals and jewelry saw increases of 25.7%, 14.6%, 11.4%, and 10.4%, respectively. From January to October, the total retail sales of social consumer goods amounted to RMB 385,440 billion, with a y-o-y increase of 6.9%. The national online retail sales reached RMB 122,915 billion, reflecting an 11.2% y-o-y increase. In the first ten months, the y-o-y growth of service retail sales was 19.0%, accelerating by 0.1 percentage points compared to the period from January to September.
From the data, it can be observed that consumer spending in October has started to recover significantly from the lows in August and September. However, the rebound in October is influenced by seasonal factors, with the so-called Golden Week long holidays playing a crucial role in supporting consumption growth during this month. Last year, the performance of consumer spending in the last two months was mediocre, and under the base effect, the y-o-y growth of consumption in the last two months of this year may continue to rise. If there are no unexpected factors, the y-o-y growth of consumption for the whole year may exceed 7%. Overall, the actual recovery of consumption this year is not as expected. Still, due to lackluster export performance and a trend of slowing investment growth, the contribution of consumption to this year’s economic growth may reach a high level.
Figure 2: Total Retail Sales of Consumer Goods in China and Year-on-Year Growth Rate (Monthly) since 2022.
When it comes to investment, from January to October, the total fixed asset investment nationwide (excluding rural households) was RMB 41,940.9 billion, a y-o-y increase of 2.9%, down 0.2 percentage points from January to September. Breaking it down by sector, infrastructure investment increased by 5.9% y-o-y, manufacturing investment rose by 6.2%, and real estate development investment decreased by 9.3%. The national sales area of commercial buildings was 925.79 million square meters, a y-o-y decrease of 7.8%. The sales value of commercial buildings was RMB 97,161 billion, a drop of 4.9%. By industry, investment in the primary industry decreased by 1.3% y-o-y, investment in the secondary industry increased by 9.0%, and investment in the tertiary industry grew by 0.4%. Private investment decreased by 0.5%, narrowing down by 0.1 percentage points compared to January-September; state-controlled investment increased by 6.7%, with the growth rate continuing to slow down. Excluding real estate development investment, private investment increased by 9.1% y-o-y. Investment in high-tech industries grew by 11.1% y-o-y in October, and month-on-month (m-o-m) fixed asset investment (excluding rural households) increased by 0.10%.
Investment has been a relatively underperforming sector in the economy this year. Despite the country introducing numerous policies and initiating several major projects to stabilize the economy, the investment growth rate continues to decline persistently, with private investment experiencing six consecutive months of negative growth. The subdued investment reflects a significant lack of domestic demand this year, especially with severe deficiencies in business confidence. It is worth noting that China’s domestic investment downturn is significantly influenced by the decline in real estate investment, with a substantial portion of private investment concentrated in the real estate sector. The structural changes observed in fixed asset investment imply that the future recovery of investment growth will depend on whether real estate investment can stabilize. Some argue that market confidence primarily relies on consumption, but according to researchers at ANBOUND, whether the Chinese market has confidence in 2023 primarily depends on investment and enterprises. After October, most of the projects that needed investment have been completed. Even with additional investment, it is difficult to contribute significantly to this year’s GDP. In the last two months, the national investment growth rate may slow down slightly, and the annual investment growth rate may be between 2-3%. We also believe that the sluggish trend in fixed asset investment this year may continue into early next year. It is crucial to emphasize that the significant deviation between the investment cycle and the policy cycle this year demonstrates the powerful inertia of market adjustments which are not easily swayed by policy intentions.
Figure 3: Year-on-Year Growth Rate of Fixed Asset Investment since 2022 (%)
As for foreign trade, in October, the total value of goods imported and exported was RMB 35,417 billion, a y-o-y increase of 0.9%. Among them, exports were RMB 19,736 billion, a decrease of 3.1%, and imports were RMB 15,681 billion, an increase of 6.4%. After offsetting imports and exports, the trade surplus was RMB 405.5 billion. In terms of USD, in October of this year, China’s total imports and exports were USD 493.13 billion, a decrease of 2.5%. Among them, exports were USD 274.83 billion, a decrease of 6.4%, and imports were USD 218.3 billion, an increase of 3%. The trade surplus was USD 56.53 billion, narrowing by 30.8%. From January to October, the total value of goods imported and exported was RMB 34.32 trillion, a y-o-y increase of 0.03%. Among them, exports were RMB 19.55 trillion, an increase of 0.4%, and imports were RMB 14.77 trillion, a decrease of 0.5%. The trade surplus was RMB 4.78 trillion, expanding by 3.2%. However, in terms of USD too, in the first 10 months of this year, the country’s total imports and exports were USD 4.9 trillion, a decrease of 6%. Among them, exports were USD 2.79 trillion, a decrease of 5.6%, and imports were USD 2.11 trillion, a decrease of 6.5%. The trade surplus was USD 684.04 billion, narrowing by 2.7%.
From a macro perspective, China’s imports and exports are in a downward trend, which, although related to the overall environment of global economic slowdown and weak demand, also indicates a worrisome trend—the contraction of the country’s relationship with the world economy and the ongoing “progressive decoupling” in the trade sector. Researchers at ANBOUND have been concerned that a new process of globalization is underway, and China may lack a position in it. The latest changes in China’s foreign trade can provide a glimpse of this evolving trend.
Figure 4: China’s Import and Export Year-on-Year Growth Rates (In USD) Since March 2021
In terms of prices, in October, the national consumer price index (CPI) decreased by 0.2% y-o-y and 0.1% m-o-m. From January to October, the national consumer price index rose by 0.4% y-o-y. In October, the national producer price index (PPI) decreased by 2.6% y-o-y, remaining unchanged m-o-m The national industrial producer purchase prices decreased by 3.7% y-o-y and increased by 0.2% m-o-m. From January to October, the national industrial producer ex-factory prices and purchase prices decreased by 3.1% and 3.6% y-o-y, respectively. Looking at the overall trend presented by CPI and PPI data, the activity levels in both consumption and production remain relatively low this year.
Final analysis conclusion:
From the economic data of the first 10 months, the Chinese economic cycle appears to be inconsistent with the policy cycle, indicating a strong inertia in economic operation that does not shift with policy changes. With less than two months left until the end of 2023, the overall economic situation is largely determined. In terms of policies, the focus should be on maintaining stability, without the need to aggressively expand investment or initiate new projects. It is essential to reserve resources for the economic challenges of the coming year. Furthermore, the future economic policy of the country should continue to concentrate on people’s livelihoods and the consumer sector, supporting the development of private enterprises.
He Jun is a researcher at ANBOUND