China’s Economic Recovery Slows amid Housing Market Struggles and Debt Risks


A struggling recovery, mostly due to issues in the property sector, mounting local government debt, and stagnating global demand, is slowing the world’s second-largest economy. Amid weak domestic demand, manufacturers have been compelled to reduce prices to attract customers. Policymakers are grappling with the need for additional stimulus as the uneven recovery continues, and analysts suggest underlying issues persist. Home prices and property investment in China have continued to fall, with retail sales falling short of expectations. Economists urge authorities for pro-growth policies translated into near-term growth to avoid a Japanese-style stagnation setting in later this decade.

Detailed Economic Landscape in China

Economists Ellen Zhang, Joe Cash, and Liangping Gao observe that China’s economy has faced difficulties in bouncing back post-COVID. This can be attributed to problems in the housing market, local government debt risks, and a slump in global demand that has curtailed its momentum.

The Asian giant’s economy expanded faster than predicted in Q3. However, sluggish domestic demand and manufacturers’ necessity to slash prices to attract buyers have cast a shadow over this growth.

Challenges to Recovery and Policy Responses

A handful of policy support measures have shown to be only minimally beneficial. Economists opine that various sectors of the economy operate at varying paces and persisting concerns add to the pressure on authorities to launch more stimulus packages.

As per remarks by Dan Wang, the chief economist at Bank China, transactions typically slump towards the year’s end as the property sector is reluctant to assume increased leverage. Home prices are significantly high compared to urban incomes which cause consumers to adopt a “wait and see” approach.

Property Sector and Retail Sales Trends

A continued downward trend was observed in China’s new home prices which declined for the fifth straight month in November. Data from the National Bureau of Statistics (NBS) also showed a drop of 9.4% in property investment from January to November.

Retail sales increased by 10.1% in November, a surge from the 7.6% uplift in October. But they fell short of market projections of a 12.5% leap, primarily facilitated by the low base effect in 2022 when COVID restrictions disrupted consumers and businesses.

Need for Greater Support

Analysts have remained skeptical about the improving output data sparked by rapid growth in car production and power generation. They highlight that factory-gate deflation intensified last month, and a full-scale economic recovery is still a far-off reality.

Other economic markers in November further indicate that the economy is grappling to recover. Imports continued to drop and, while exports saw growth for the first time in six months, this was largely due to manufacturers offering unsustainable discounts.

The inconsistent recovery has led analysts to caution that China may descend into a phase of Japanese-style stagnation in the latter part of the decade if policymakers do not take steps to reorient the economy towards household consumption and resource allocation.

Perspective Going Forward

Policymakers suggest the government might need further stimulus to fulfill an annual economic growth goal of “around 5%” for the next year, a target similar to this year’s. Recently, top leadership announced that they would enhance policy adaptations to bolster the economic recovery in 2024, with an emphasis on promoting domestic demand. Major cities, Shanghai and Beijing, announced loosened restrictions on home purchases last Thursday, including slashing the minimum deposit ratio for the first and second homes.

Such economic fluctuations and policy changes have a far-reaching impact on forex and trading, affecting the valuations of various assets such as commodities, China’s currency the Yuan, and stocks in Chinese companies.

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