China’s economy is facing severe challenges in the fourth quarter, with official data from the Chinese Communist Party showing the largest drop in housing prices in a year in October. Fixed asset investment has also seen a rare decline in recent years, while industrial output and retail sales growth have both slowed, reflecting weakening domestic demand and the worsening real estate crisis.
Economists have raised concerns about the outlook for the Chinese economy, warning that the effects of recent easing measures in the local real estate market are diminishing and the property market has yet to hit rock bottom.
Many experts have cautioned that Chinese economic data released by the government may be embellished. However, despite this skepticism, the data released by the authorities on Friday, November 14th, has painted a bleak economic picture.
According to the latest data from the National Bureau of Statistics of China, industrial output in October grew by 4.9% year-on-year, the weakest since August 2024, significantly lower than September’s 6.5% and below market expectations of 5.5%.
Retail sales only increased by 2.9%, also the weakest in a year, and have been slowing for five consecutive months.
The sluggishness in the retail sector was also evident during the recently concluded “Double 11” shopping festival. This year’s “Double 11” promotion on major Chinese e-commerce platforms lasted over a month, driving some sales but overall consumer sentiment remained subdued, with a noticeable lack of enthusiasm compared to previous years. Even with significant discounts offered by e-commerce platforms, it was difficult to boost purchasing intentions significantly, indicating that consumers are becoming more cautious amid a downturn in the housing market and uncertain income prospects.
Fixed asset investment from January to October also declined by 1.7% year-on-year, the largest drop in the same period on record. Analysts quoted by CNBC pointed out that investment in October alone fell by 11.4%, the weakest performance since the early days of the 2020 pandemic.
Zhiwei Zhang, President and Chief Economist of Pinpoint Asset Management, commented, “The decline in fixed asset investment is quite rapid,” attributing it to weaker investment in the real estate industry and sluggish infrastructure investment.
Lynn Song, Chief Economist for Greater China at ING, said, “Given the emphasis on the importance of domestic demand by the authorities, the weakening economic momentum in the second half of the year is somewhat disappointing.”
The data further indicates that the prolonged slump in the real estate market, which has weighed on the Chinese economy for four years, is deteriorating further. According to official data analyzed by Reuters, new residential prices fell by 0.5% month-on-month in October, the largest drop in a year, and declined by 2.2% year-on-year.
Second-hand housing prices, which reflect market confidence, experienced a more severe decline, dropping by 0.66% monthly, the fastest decline in the past 13 months.
Real estate investment from January to October this year fell by 14.7% year-on-year, higher than the 13.9% decline in the previous nine months.
Kelvin Lam, Senior China Economist at Pantheon Macroeconomics, stated, “The real estate industry is still in a slump,” and added, “It will take about another year and a half for inventory to rebalance to a reasonable level.”
The prolonged decline in house prices is undermining the confidence of homebuyers, who are beginning to question whether real estate can still be seen as a wealth storage tool for households.
Analysts also warned that the decline in second-hand housing prices is nearing a critical threshold.
“If the decline in second-hand housing prices continues, referencing the pattern of quick policy responses in 2024, the likelihood of government intervention will significantly increase,” said Xu Tianchen, Senior Economist at the Economist Intelligence Unit.
However, despite the pressures, recent easing measures have proven ineffective. The most recent round of stimulus measures in the property market by the Chinese authorities appeared at the end of August, when major cities such as Beijing, Shanghai, and Shenzhen relaxed home purchasing rules, particularly in suburban areas.
Yu Xiangrong, Chief Economist for Greater China at Citigroup, pointed out that due to stagnant household incomes and slowing urbanization, the effects of these measures are less effective than similar actions taken in September last year.
Yu warned, “The effects of real estate policies are weakening, and the real estate market has yet to hit rock bottom. We do not believe that the real estate industry will stabilize within a year.”
Economists caution that the Chinese economy is facing multiple downward pressures rather than just short-term demand issues.
Fred Neumann, Chief Economist for Asia at HSBC, stated, “The Chinese economy is under pressure from all sides. The growth momentum from exports is difficult to sustain, even with U.S. tariffs lower than expected. It will be very challenging to reverse the slowdown in investment and consumption without more significant stimulus.”
“Structural problems are dragging growth down,” Xu Tianchen pointed out, noting that while there is room for stimulus measures, officials prefer to reserve them until 2026.