China’s economy stabilized in September as factory activity expanded, signaling the first growth in six months. According to an official National Bureau of Statistics survey, the purchasing managers’ index (PMI) climbed to 50.2, surpassing the 50-point level that marks the boundary between expansion and contraction.
This positive news indicates the economy’s recovery, which had struggled following the lifting of ultra-restrictive COVID-19 policies earlier this year. Adding to the optimism is the rise in the non-manufacturing PMI.
Despite the positive news of China’s economic stabilization, some obstacles remain. The manufacturing industry still faces challenges in its recovery and development, and China’s property crisis still burdens economic growth.
Experts recommend implementing additional policy support to ensure China achieves its government growth target of approximately 5% this year.
While China’s economy has improved in sectors like factory output and retail sales, the ongoing property crisis is still a significant concern for policymakers.
They strive to find more stable economic indicators as they address the debt crisis in the property sector.
Measures like mortgage rate cuts have been implemented to support the market, but there are still challenges to be faced.
Stable Economy Indicators
As policymakers tackle the ongoing property sector debt crisis that has had global repercussions, they eagerly await more stable economic indicators.
The authorities have taken measures like reducing mortgage rates to support the market. However, the sector still faces significant challenges and remains far from being out of danger.
The property market faced another setback in August when new home prices experienced a significant decline, marking the most significant drop in ten months. Property investment has declined for 18 consecutive months, adding to the sector’s woes.
The situation was further compounded by the news that the founder of China Evergrande Group, the world’s most indebted property developer, is under investigation for suspected “illegal crimes.”
Due to the ongoing struggles within the property market, the Asian Development Bank has recently adjusted its 2023 economic growth projection for China, lowering it from 5.0% to 4.9%.
Experts highlight the need for more policy measures to help China’s economy attain the government’s growth target of approximately 5% this year. While the relaxation of policies in the property sector has aided in stabilizing the economy, the pressing issue is whether the fiscal policy will become more supportive.
Several analysts predict that the change in fiscal policy stance could happen in the coming year instead of this year.
Rejuvenating China’s Economic Growth
Rejuvenating China’s stagnating economic growth is a challenge for policymakers. Analysts are urging the implementation of more robust measures to complement the incremental support provided in recent months.
The effectiveness of economic stabilization policies is now the primary concern. Wang, a respected expert in the field, suggests that additional efforts may be required to improve employment and income.
Nevertheless, while some analysts call for more robust measures to rejuvenate China’s economic growth, S&P Global Ratings predicts that Chinese authorities will not provide significant fiscal or monetary stimulus in the coming months.
This suggests that China is moving away from unsustainable debt-driven growth, even if it may pose short-term challenges for businesses and banks.
However, a recent PMI survey conducted by Caixin/S&P Global showed that the services sector in China expanded slowly in September despite previous support measures.
The slow growth was attributed to unfavorable market conditions that resulted in slower-than-anticipated supply and demand in the services sector. Furthermore, business confidence for the 12-month outlook reached a 10-month low in September.
Written by Janet Grace Ortigas
Source:
Reuters: China’s economy stabilizes, factory activity returns to expansion by Ryan Woo and Tina Qiao
Bloomberg: China’s Factory Activity Moderates, Private Survey Shows by Bloomberg News
ABC News: In a good sign for China’s struggling economy, factory activity grows for the first time in 6 months
South China Morning Post: Growth slows in China’s factory, services sectors as economy struggles to find footing: Caixin PMI
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