China stimulus boosts domestic consumption as Trump tariffs loom
China entered the fourth quarter with a more balanced economy as consumption growth nearly caught up to factory output, in an upswing that now depends on how much more stimulus Beijing may deploy in the event of a tariff shock when Donald Trump returns to the White House in 2025.
Retail sales expanded at the fastest in eight months in October, according to figures published by the National Bureau of Statistics on Friday, exceeding the forecasts of all 29 economists surveyed by Bloomberg. Industrial production increased at a slightly slower pace from the previous month but hovered above a level critical to achieving the government’s 2024 growth target of around 5%.
The strength in consumption is encouraging after a lopsided recovery in China in which household spending trailed production, held back by sluggish sentiment among shoppers and the private sector. Boosting domestic demand could become even more pressing after last week’s reelection of Trump as U.S. president, given his threat of a 60% tariff on most Chinese imports risks wreaking havoc on the Asian country’s export sector.
“There are preliminary signs that policies are intended at rebalancing the economy and its growth model,” said Jacqueline Rong, chief China economist at BNP Paribas SA. “Whether the mild recovery can continue next year depends on what additional policies will be rolled out. We think further policy support is needed to maintain the momentum of growth in 2025.”
China’s benchmark CSI 300 Index of onshore stocks briefly erased losses in morning trading after the data release, before closing 1.8% lower on Friday as concerns over a deepening rift with the US outweighed signs of economic stabilization. Chinese shares in Hong Kong were up 0.2% as of 3:30 p.m. local time after falling 0.6% earlier.
The snapshot of China’s economy for October offered other indications of easing pressures.
Declines in home prices abated, although it takes time for property inventory to be digested and developer confidence to recover enough to invest in new projects. Infrastructure investment was steady and the urban jobless rate fell to the lowest since June.
“In light of a potential Trump shock, China has no choice but to boost domestic spending,” said Raymond Yeung, chief economist for Greater China at Australia & New Zealand Banking Group Ltd.
While a single month’s data are insufficient to confirm a firm rebalancing toward consumption, “unlocking household savings is certainly the only way out going forward,” he said.
Key indicators show a stabilization in October:
- Retail sales jumped 4.8% on year, beating a projected 3.8% growth and the strongest rate since February
- Industrial output rose 5.3%, versus a 5.4% gain in the previous month and lower than economists’ forecast of a 5.6% increase
- Fixed-asset investment expanded 3.4% in the first 10 months, unchanged from the reading for January-September. Property investment tumbled 10.3% in the period
- The urban jobless rate dropped to 5% from 5.1% in September
The indicators released on Friday captured the immediate effects of China’s boldest stimulus measures since the pandemic that aimed to ensure the country reaches its annual growth target.
Beijing has also sought to spur consumer spending by subsidizing purchases of equipment, appliances and cars in a program announced earlier this year and ramped up in the last few months.
The sales of home appliances rose 39% compared to the same period last year, the fastest growth since 2010 excluding January and February numbers that are combined due to a distortion from Lunar New Year holidays.
| Category | Growth (y/y) | Highest Since |
|---|---|---|
| Cosmetics | 40% | 2021 |
| Recreational goods | 27% | 2021 |
| Cultural, office appliances | 18% | 2021 |
| Communications equipment | 14% | August |
The question now is how far Beijing is willing to go to shore up domestic demand and tackle deflation.
“We should be aware that the external environment is increasingly complicated and severe, effective demand is still weak at home and the foundation for continuous economic recovery needs to be strengthened,” the NBS said in a statement.
What Bloomberg Economics says
“The message from the activity data — the overall economy is bottoming out but not yet recovering. We see the economy picking up in coming months. To a large degree this would be thanks to an expected acceleration in fiscal spending as the government strives to disburse budgeted expenditure.
—— Chang Shu, chief Asia economist, and Eric Zhu, economist.
A slowdown of economic expansion in the last quarter to the weakest since early 2023 has prompted policymakers to deliver out-sized interest-rate cuts and support for the property and stock markets. Authorities also rolled out a $1.4 trillion debt swap program to curb debt risks faced by local authorities and free up fiscal room for them to promote growth.
Data released previously for October painted a mixed picture of the state of the world’s second-largest economy.
Sentiment among manufacturers and service providers improved and export growth hit a two-year high. However, inflation stayed near zero and credit expansion slowed more than expected, reflecting tepid domestic demand.
Finance Minister Lan Fo’an has promised “more forceful” fiscal policy next year, hinting at an increase in the budget deficit, an expansion in special local bond issuance and freer use of the funds raised. He also suggested greater support for the cash-for-clunkers program.
Infrastructure will likely remain a focus of government support next year given the manufacturing sector is struggling with excess capacity and huge inventory needs to be reduced in the real estate market, BNP’s Rong said.
The cash-for-clunkers program is expected to be extended and more subsidies may be granted to the poor, she added.
The decline in new housing prices softened to the slowest since March while the drop in the cost of used homes narrowed to the smallest in more than a year, NBS figures showed. The slump in property sales also eased.
The relaxation of purchase restrictions in first-tier cities was the main reason behind the better numbers, said Michelle Lam, Greater China economist at Societe Generale SA.
“It remains to be seen how sustainable the improvement in sales will be and whether the improvement can broaden out to other top-tier cities,” she said. “Government destocking support is needed for that to happen.”
