China’s industrial production and retail sales jump

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Industrial output and retail sales rose in China last month, but the increase from a low base failed to dispel doubts about prospects for growth in the world’s second-biggest economy.

Industrial production rose 6.6 per cent year on year, ahead of analysts’ expectations, data showed on Friday. Retail sales rose 10.1 per cent, lower than anticipated. Fixed-asset investment grew 2.9 per cent in the first 11 months of the year.

November’s economic data benefited from weak figures a year earlier, when the country was in the final stages of its three-year zero-Covid policy.

The country’s economic releases have been closely watched as policymakers in Beijing grapple with an array of post-pandemic challenges, including a property sector slowdown and worsening deflation.

Official data on Saturday showed consumer prices fell 0.5 per cent year on year in November, the steepest fall in three years. China entered deflationary territory in July.

Beijing has set the lowest annual economic growth target in decades for 2023, at 5 per cent. Piecemeal measures, including loan rate cuts and targeted funding in the first six months of the year, have failed to arrest weakness in its critically important property sector, prompting the government to increase support in the second half of this year.

Analysts expect policymakers to set the growth target again at about 5 per cent for 2024, indicating the government may continue to introduce supportive policies to boost the economy and confidence.

The readout from the Central Economic Work Conference, an annual meeting that sets economic policy for the following year, said China “must seek progress while maintaining stability, promote stability through progress, and establish the new before tearing down the old”.

“The tone from the latest conference has been on the supportive side for economic growth. But details on how much, how targeted and what the [gross domestic product] growth target is all remains to be seen,” said Pruksa Iamthongthong, senior investment director of Asia Dragon Trust at Abrdn.

Separately on Friday, the People’s Bank of China injected a record net Rmb800bn ($113bn) into the banking system through its monthly medium-term lending facility. The PBoC has injected funding through one-year policy loans throughout the year.

The central bank said the move was related to “short-term factors including government bond issuance”. The Chinese government in October said it would issue Rmb1tn in sovereign bonds this year to finance infrastructure spending.

“As the main purchaser of government bonds, banks face increasing pressure on liquidity assessments and a large gap in medium- to long-term liquidity,” said Wen Bin, chief economist at China Minsheng Bank. 

Wen said a large net injection through policy loans would help banks better fulfil regulators’ instructions to support struggling property developers and indebted local governments.

Policymakers have come under pressure to ease financial conditions in light of a sustained property slowdown, which began in 2021 with the default of Evergrande, the world’s most indebted developer.

Officials have struggled to balance the desire to stimulate the stuttering economy by reducing borrowing costs with the need to preserve the stability and profitability of the $56tn banking system.

In October a default at Country Garden, China’s largest private developer by sales, refocused concerns on the country’s property market, while turmoil at investment group Zhongzhi over the summer added to fears of spillover effects.

Data on Friday showed average home prices across 70 major cities continued to decline. Property investment is down 9.4 per cent in the first 11 months of the year, slightly worse than in October.

Beijing on Thursday unveiled new measures to encourage property purchases, such as reducing downpayment requirements, as part of a wave of similar efforts in other cities to stimulate activity.

Hong Kong’s benchmark Hang Seng stock index rose 2.3 per cent on Friday, in what looked set to be the best weekly gain since late July, in part because of the US Federal Reserve’s dovish stance on interest rates, while the CSI 300 index of Shanghai- and Shenzhen-listed shares fell 0.3 per cent.