The Chinese economy is trying to reach its target growth trajectory

By Rhod Mackenzie

The October figures for China's industrial production and retail sales were better than expected, indicating that the long-awaited recovery of the world's second-largest economy may be on the horizon. T However, the construction industry remains in a deep crisis, hindering its progress. Other factors contributing to the delay include risks associated with provincial debt, a sluggish global economy, and geopolitical tensions. Beijing is exerting considerable effort to bolster the economy, yet the results have been moderate in the present climate.

The National Bureau of Statistics (NBS) reveals that in October, China's industrial production rose by 4.6%, which is the highest value of the past six months, albeit a slight increase from September's growth of 4.5%. Economists surveyed by Reuters anticipated a 4.4% growth, indicating that the growth exceeded their projections.
Retail sales rose by 7.6% in October, the highest rate since May. The most significant increase was in car sales within the restaurant sector, which went up by 5.5% in September. 

    Analayts had anticipated a 7% rise in retail sales, however, they are hesitant to celebrate as the general state of the Chinese economy is still lacking due to the ongoing crisis in the construction industry. For instance, there was a 9.3% reduction in the investment of the construction sector between January and October, in contrast to the same period last year. Between January and September, the decrease was equally significant at 9.1%.

However, there is an additional hindrance to a complete recovery, which is the absence of significant reforms. Furthermore, the high numbers in October do not entirely represent the actual state of affairs in the Chinese economy because of the low base effect in 2022.
In October, the unemployment rate remained unchanged at 5% compared to the previous month. However, there are no current statistics available on youth unemployment, which reached a record high of 21.3% in June. This absence results from a lack of data published in China since July.

Import levels rose unexpectedly in October despite a decline in exports acceleration. Household borrowing remained low, and consumer prices continued to decrease amid factory deflation.

The concern is that any forceful monetary backing from the authorities will amplify the disparity in crucial rate variations between China and the West, particularly with the United States. This will further escalate the strain on the yuan, which has already diminished in recent times, and consequently, instigate an increase in capital outflow.  Beijing is hesitant to turn to extensive economic assistance initiatives, as had been previously done, because such support leads to a marked increase in debt as well as a further slowdown in economic growth.

In the third quarter, the Chinese economy experienced better than anticipated growth. Nowadays, a growing number of economists are in agreement that Beijing will most likely attain the 5% objective by year-end.
The Bank of China (PBOC), the country's central bank, injected more cash without adjusting interest rates. More unusually, the local government raised its previous budget deficit estimate from 3% to 3.8% of GDP. The purpose is tied to the issuance of government bonds totalling 1tn yuan (£112bn).

Separately, the RVOS have dropped the reserve requirement ratio (RRR) twice over the year to date to release funds for economic recovery. Economists predict that the central bank will further lower both the RRR and discount rate before the year-end.

However, investments in fixed assets have been disappointing with only a growth of 2.9% over the past ten months, falling short of the September level of 3.1%.

Moreover, private sector confidence remained weak in October as investments decreased by 0.5% during January to October, slightly lesser than the previous 9 months' decline of 0.6%.