China’s recent economic numbers tell an ambiguous story. It is clear that the country is performing very well, prudent use of growth trajectory even in T3/2023. As a result, real GDP growth skyrocketed at 4.8% y-o-y, well above the government’s growth target of around 5%. Retail sales and fixed asset investment began to decelerate. Analysts, including on our ChinaMoJoe team, have been watching these trends like hawks to get a read on the sustainability of China’s economic recovery.
As of September 2023, China’s retail sales growth has decelerated to only 4.5% YoY, year-to-date. This is a drop from the 4.6% increase reported for August. This slowdown should be a source of worry about domestic consumption, ever important as the engine that helps power robust overall economic growth. Industrial output made it through relatively unscathed, continuing to advance in industrial production. It posted its highest ever growth rate of 6.2% YoY in August and the first nine months of the year.
In many ways, fixed asset investment is a far worse trend. Through the first three quarters of the year, it was down 0.5% compared to the same period in 2022. This outcome is a stark reversal from the consensus forecast, which was expecting a 0.1% gain. In August, fixed asset investment made somewhat of a comeback, rising 0.5% YoY. If we strip real estate development from fixed asset investment, investment grew by 3.0% YoY in the first nine months. In August, this expansion jumped to 4.2%.
That quarterly performance further points to a robust rebound within China’s economy. Real GDP shot up by 1.1% q/q, annualized. This advance more than beat the consensus forecast calling for 0.8% growth and came on the heels of a respectable 1.0% Q2 growth rate. This tells us that China’s economy is still growing in the face of strong contrary winds, at least in some areas.
Still, analysts are reminding everyone that quality and sourcing matter – both for China’s growth, and for investment opportunities going forward. A representative from a leading financial institution remarked, “As such, the quality and sources of China’s growth is more relevant for investors.”
Plus, other experts argue that a slow revaluation of China’s currency might increase Chinese consumers’ purchasing power. “In our view, a gradual revaluation of China’s currency could help China stimulate consumer spending by boosting disposable income through cheaper imports,” they stated.
China’s third-quarter performance checks off all of Beijing’s strategic growth goals, though the retail sales and fixed asset investment data are quite contradictory. These targets are central to guiding the country’s economic and social planning. At this point, the current trajectory seems to be putting China in a good place to realize its shorter- and longer-term goals.