Top of main content

China in Focus: Economy on firmer footing

19 Dec 2023

Key takeaways

  • Consumption remains a key pillar of growth and is likely to sustain momentum in the coming quarters

  • Meanwhile, policymakers have announced a range of measures which should help to stabilise the property sector

China data review (November 2023)1

  • Retail sales rose by 10.1% y-o-y in November, partly helped by a relatively low base last year. Services consumption remained strong as services-related retail sales rose by 19.5% y-o-y year-to-date through November while catering sales rose by 25.8% y-o-y. There are also signs that services consumption strength is broadening out: durable goods demand has picked up as communication appliances rose by 16.8% y-o-y and auto sales rose by 14.7% y-o-y.

  • Industrial production grew 6.6% y-o-y in November on the back of strong manufacturing activity, particularly in automobile productioin (+20.7%), as well as other high-end technology sectors such as electrical machinery (+10.2%), and computer and communications (+10.6%). Indeed, policy support for auto demand, particularly electrical vehicles, has been conducive for related manufacturing.

  • Fixed Asset Investment was unchanged from last month, rising 2.9% y-o-y in November. The divergence between industries continues. For one, manufacturing investment picked up, while infrastructure investment held steady at a growth rate of 8.1% y-o-y. This has been helped by a renewed fiscal policy push including from RMB1trn of treasury bond issuance for disaster prevention and mitigation announced in October this year.

  • CPI inflation fell by 0.5% y-o-y in November, dragged down by food prices, which contributed 0.64ppt of the decline. The weakened activity in the property sector likely weighed on broader sentiment, while the fading impact of the holidays also softened the pace of some related service prices. Meanwhile, PPI inflation fell 3.0% y-o-y, weighed down by lower global commodity prices, a weak property sector, and some passing on of cost savings to end-consumers.

  • Export growth returned to postive territory in November, up by 0.5% y-o-y, as base effects helped to mask the ongoing softeness in global demand. Meanwhile, import growth fell back into contraction in November, dropping 0.6% y-o-y, despite a low base and indicating still wobbly domestic demand. We think the recent weakness in the property sector has played a role as demand for key construction materials saw a softer pace of growth.

Economy on firmer footing

We expect the recovery to further broaden out

We have turned more positive on China’s growth prospects following recent strong activity readings and a more proactive policy stance. We expect the recovery to further broaden out and for more policy support to stabilise the property sector, as well as to help resolve local government debt overhang. While the new housing development model is promising, more concerted action by policymakers and timely implementation will be critical to avoid an even larger stabilisation cost. Long-term growth will also remain the focus as the government aims to balance addressing structural concerns, such as elevated local government debt, with growth opportunities in innovation-led sectors and green development.

Consumption leading the way

Consumption growth is the bright spot

Consumption has continued to be a key driver for growth throughout the year (see Chart 1) and is likely to underpin sustained momentum in the coming quarters. Services-related retail sales have grown at 19.5% in the first 11 months of 2023, far outpacing still healthy overall retail sales growth of c7%. The robust performance of the service sector has boosted spending power and consumption among lower income groups in particular. But, for a more holistic economic recovery, it’s essential for this momentum to broaden out, enhancing business confidence, and stimulating more spending in higher income brackets. That way, the cascading effect would strengthen the overall economic recovery, especially given weak external demand. There are some green shoots as industrial production has stayed buoyant, but policy support is needed for steadier growth.

Property green shoots

Policy measures could stability the property market

The most pressing issue is to stabilise the property market, though improvement of secondhand home sales in large cities recently may be an early indication of hope (see Chart 2) after a challenging phase of continued property market stress. New primary home sales have fallen by double digits y-o-y since June, which has weighed down the entire property sector value chain. The government is transitioning towards a new dual-track housing model, with a larger government-led social housing sector complemented by a commercial real estate sector largely under market forces. A myriad of property policy measures, if implemented timely and on a meaningful scale, should lead to stabilisation: increased government support through directing funding for local governments to absorb excess capacity such as through pledged supplemental lending facilities (PSLs), the greenlighting of funding support for healthy developers and easing of home purchase restrictions to unleash demand in large cities.

Source: Wind, HSBC
Source: CEIC, HSBC
Source: Refinitiv Eikon
* Past performance is not an indication of future returns Source: Refinitiv Eikon. As of 14-Dec-2023 market close

Related Insights

Services demand continues to lead China’s economic recovery although headwinds persist in...[30 Oct]

China’s economic recovery accelerated in Q3, as the consumption-led recovery continued to broaden out...[27 Oct]

Recovery momentum continued to ease while services and related consumption remained the...[4 Aug]

Consumption, particularly services, continues to fuel China’s economic recovery...[29 May]

Disclosure appendix

Additional disclosures

 

1.  This report is dated as at 15 December 2023.

2.  All market data included in this report are dated as at close 15 December 2023, unless a different date and/or a specific time of day is indicated in the report. 

3.  HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research operate and have a management reporting line independent of HSBC's Investment Banking business. Information Barrier procedures are in place between the Investment Banking, Principal Trading, and Research businesses to ensure that any confidential and/or price sensitive information is handled in an appropriate manner.

4.  You are not permitted to use, for reference, any data in this document for the purpose of (i) determining the interest payable, or other sums due, under loan agreements or under other financial contracts or instruments, (ii) determining the price at which a financial instrument may be bought or sold or traded or redeemed, or the value of a financial instrument, and/or (iii) measuring the performance of a financial instrument or of an investment fund.

Disclaimer

This document is prepared by The Hongkong and Shanghai Banking Corporation Limited (‘HBAP’), 1 Queen’s Road Central, Hong Kong. HBAP is incorporated in Hong Kong and is part of the HSBC Group. This document is distributed by HSBC Bank Canada, HSBC Bank (China) Company Limited, HSBC Continental Europe, HBAP, HSBC Bank (Singapore) Limited, HSBC Bank (Taiwan) Limited, HSBC Bank Malaysia Berhad (127776-V) / HSBC Amanah Malaysia Berhad (807705-X), The Hongkong and Shanghai Banking Corporation Limited, India, HSBC Bank Middle East Limited, HSBC UK Bank plc, HSBC Bank plc, Jersey Branch, and HSBC Bank plc, Guernsey Branch (collectively, the “Distributors”) to their respective clients. This document is for general circulation and information purposes only. This document is not prepared with any particular customers or purposes in mind and does not take into account any investment objectives, financial situation or personal circumstances or needs of any particular customer. HBAP has prepared this document based on publicly available information at the time of preparation from sources it believes to be reliable but it has not independently verified such information. The contents of this document are subject to change without notice. HBAP and the Distributors are not responsible for any loss, damage or other consequences of any kind that you may incur or suffer as a result of, arising from or relating to your use of or reliance on this document. HBAP and the Distributors give no guarantee, representation or warranty as to the accuracy, timeliness or completeness of this document. This document is not investment advice or recommendation nor is it intended to sell investments or services or solicit purchases or subscriptions for them. You should not use or rely on this document in making any investment decision. HBAP and the Distributors are not responsible for such use or reliance by you. You should consult your professional advisor in your jurisdiction if you have any questions regarding the contents of this document. You should not reproduce or further distribute the contents of this document to any person or entity, whether in whole or in part, for any purpose. This document may not be distributed to any jurisdiction where its distribution is unlawful.

The following statement is only applicable to HSBC Bank (Taiwan) Limited with regard to how the publication is distributed to its customers: HSBC Bank (Taiwan) Limited (“the Bank”) shall fulfill the fiduciary duty act as a reasonable person once in exercising offering/conducting ordinary care in offering trust services/ business. However, the Bank disclaims any guaranty on the management or operation performance of the trust business.

The following statement is only applicable to by HSBC Bank Australia with regard to how the publication is distributed to its customers: This document is distributed by HSBC Bank Australia Limited ABN 48 006 434 162, AFSL/ACL 232595 (HBAU). HBAP has a Sydney Branch ARBN 117 925 970 AFSL 301737.The statements contained in thi s document are general in nature and do not constitute investment research or a recommendation, or a statement of opinion (financial product advice) to buy or sell investments. This document has not taken into account your personal objectives, financial situation and needs. Because of that, before acting on the document you should consider its appropriateness to you, with regard to your objectives, financial situation, and needs.

© Copyright 2023. The Hongkong and Shanghai Banking Corporation Limited, ALL RIGHTS RESERVED.

No part of this document may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of The Hongkong and Shanghai Banking Corporation Limited.

Notes

Source: Wind, HSBC