【Epoch Times, December 17, 2024】 China’s economic data for November has been released one after another, revealing disappointing consumer data, a significant decline in real estate data and foreign investment, weak private investment, and a continuous decline in the Producer Price Index (PPI) for 26 consecutive months. This indicates that the economic policies implemented by the Chinese Communist Party (CCP) since the end of September have had minimal effect, and the economy continues to struggle. Analysts believe that the current policies of the CCP are failing, and the Chinese economy is losing momentum. There is growing skepticism from the outside world about China’s economic policies for next year.
The latest data released by the National Bureau of Statistics of China shows that in November, the total retail sales of consumer goods grew by 3%, the lowest growth rate in the last three months, significantly lower than the expected 4.6%, and below the average growth rate of 3.3% in the previous three quarters.
The real estate market, crucial for restoring consumer confidence, continues to decline. In the first 11 months of the year, national real estate investment fell by 10.4% year-on-year, with new construction area sales dropping by 14.3% and sales decreasing by 19.2%. Additionally, the area of unsold commercial housing increased by 12.1%. Housing construction started decreased by 23%, and completed construction area decreased by 26.2%.
Moreover, the social financing data for November indicates that private investment remains weak. Fixed asset investment grew by 3.3% year-on-year in the first 11 months, lower than the expected 3.4%. Of particular concern, the renminbi loans increased to 580 billion yuan, but the year-on-year increase was 510 billion yuan less than anticipated, and below the market’s expectation of 1 trillion yuan. Corporate loans that reflect economic activity increased by 572 billion yuan less year-on-year, including a decrease of 236 billion yuan in medium and long-term corporate loans and 181 billion yuan in short-term corporate loans.
Julian Evans-Pritchard, China economist at Capital Economics, wrote in a report to clients on Monday that the disappointing data “highlight the challenges policymakers face in achieving sustained economic recovery.”
The Financial Times reported that the trading volume of Chinese sovereign bonds continued to rise strongly, with the benchmark 10-year bond yield dropping to 1.77% – hitting a historic low, underscoring investors’ concerns about growth prospects.
Official data also showed that industrial output in November appeared to increase by 5.4%, exceeding market expectations. However, U.S. economist Huang Da-wei told Epoch Times that this seemingly indicates a certain vitality in China’s manufacturing sector. However, there is a significant factor not considered in this data, the uncertainty surrounding tariffs due to Trump’s inauguration on January 20, which created a huge fear.
“Therefore, many original European and American companies took advantage of the certainty of Trump’s inauguration and placed a large number of orders, resulting in a pile of pre-ordered orders for 2025. This is a short-term factor that may not be sustainable in the future, so the 5.4% industrial growth does not carry much significance, and it may turn negative after this event ends.”
“In terms of industrial growth, there is another factor,” he said, pointing out the oversupply of so-called electric vehicles, fake new energy, fake wind power, and batteries. Due to oversupply, the produced goods may not necessarily sell. “We can see that domestic consumption of electric vehicles in China is weakening, with more and more electric vehicle companies inexplicably closing down, so this industrial growth does not truly reflect the economic situation.”
Furthermore, from January to November, Foreign Direct Investment (FDI) in China has generally declined by 27.9% in Renminbi terms this year, which does not account for recent Renminbi depreciation, although the decline has slightly eased.
Huang Da-wei believes that this reflects a more cautious and less optimistic attitude of foreign investors towards China’s economic prospects. It also indicates, “China is facing more challenges in attracting foreign investment, as the authorities have introduced many so-called friendly policies this year. Still, the investment continues to decrease, showing tensions in China’s economic and trade relationship with other developed Western countries have not improved.”
Looking ahead, Huang believes that economic growth is actually weak and faces significant pressure due to various factors such as relations with the U.S. and Europe, the complexity of geopolitical situations, among others.
The Wall Street Journal also states that China’s economy is losing momentum, with many economists predicting a slowdown in economic growth in China next year, especially if Trump follows through on imposing high tariffs on Chinese imports, which could severely impact China’s economy.
During the annual economic conference of the CCP held last week, top officials explicitly stated that they would increase stimulus measures to boost consumption, prioritizing it as the first of nine key work areas, with “using technological innovation to lead the development of new productive forces” listed as the second.
Christopher Beddor, Deputy Director of China Research at Gavekal Dragonomics, said, “For a long time, policymakers have hoped that they could use industrial policies to support short-term economic growth. But that hasn’t worked,” “So now they are turning to more conventional fiscal and monetary tools.”
Neil Thomas, a researcher at the Asia Society Policy Institute China Center, noted, “Xi Jinping has not given up other economic and political goals, but I think he realizes that he needs to maintain the bottom line of economic growth to ensure that his broader national rejuvenation agenda can continue to move forward.”
Since the outbreak of the pandemic, the CCP has implemented conservative stimulus measures, sacrificing some short-term growth to shift the economy from real estate to new growth drivers. However, the growth in industries like electric vehicles is not sufficient to compensate for the shrinkage in the real estate sector.
Xing Ziqiang, Chief China Economist at Morgan Stanley, stated that the CCP government will face a “long battle” to revive the economy, adding that 2025 will be a “year of trials.”
On Monday, Xinhua News Agency reported, citing an official from the CCP’s Central Committee’s Finance and Economics Commission, that in order to promote consumption, China will “substantially increase” funds for ultra-long-term special bonds next year to support industrial upgrading and the consumer electronics replacement program.
Bloomberg suggests that the measures hinted at recently by the CCP may not be enough to curtail the upward spiral of monetary tightening and salvage the real estate market.
According to calculations by Bloomberg News based on official data released on Monday, the total fiscal expenditure in China for the first 11 months of this year grew by 1.4% compared to the same period last year, far below the broad spending growth of 8% planned in the annual budget in March, providing minimal push to the economy.
In the wake of the 2008 global financial crisis, the CCP implemented a 4 trillion yuan stimulus package to stabilize the economy, but it left behind massive debts and created overcapacity. However, the situation is different now. Trying to replicate the effects of large-scale infrastructure investments from before is challenging. The demographic dividend is diminishing, and local governments, enterprises, and residents are heavily indebted. Moreover, many industries suffer from overcapacity, investment waste, internal competition, and continuous price wars.
China’s loose monetary policy may still not be enough. Bloomberg points out that while the prediction of a 40 to 60 basis point rate cut next year marks a significant step by the CCP’s central bank, it pales in comparison to the Federal Reserve’s 150 basis point rate cut in response to the pandemic, in 2008, the Fed also slashed rates from 4.5% to nearly zero within a year.
Tsai Ming-fang, a professor in the Department of Industrial Economics at Tamkang University in Taiwan, told Voice of America that in countries with sound market mechanisms, implementing loose monetary or fiscal policies can be effective because local businesses remain in the country. When the government stimulates the economy through policies, once the economy recovers, businesses overcome the difficulties and can regain vitality.
However, the current issue in China lies in the transfer of the international supply chain. As global supply chains migrate, quality companies are forced to leave China, leaving behind less competitive companies. In this situation, even if the CCP government rolls out more stimulus policies, they may only prolong the survival of these businesses or reduce the pressure of loans slightly. However, banks may have to bear higher bad debt risks in return.
There are also concerns from the outside world about the CCP’s reforms in social welfare and protection.
Xinhua News Agency’s report on Monday also stated that related measures will focus on increasing fiscal expenditures on consumption, improving social security, creating employment opportunities, enhancing wage growth mechanisms, increasing retirees’ pensions, and expanding medical insurance subsidies.
The Wall Street Journal pointed out that economists are cautious about whether Beijing (the CCP) truly has the courage to carry out large-scale reforms in pensions, healthcare, and other social security sectors, emphasizing that these reforms are essential for achieving sustained growth in consumption.
Economists at Nomura Securities wrote in a recent report that Beijing needs to “clean up the real estate market, repair the fiscal system, mend the social welfare system, ease geopolitical tensions” to achieve a meaningful recovery next year.
Neil Thomas stated that the focus of the National People’s Congress meeting in March is whether the Communist Party will follow through on its stimulus policy commitments. “They are just talking; the biggest question is whether they will act,” Thomas cautioned, stressing that Xi Jinping’s focus will be on “attempting to strike a balance between stabilizing short-term growth and his long-term economic agenda.”