As Economy Picks Up, Markets Anticipate Easing in Real Estate and Debt Reduction Policies (AI Translation)

【周刊提前读】经济景气度攀升 市场期待地产与化债政策松动

In April 2024, China's economic landscape showed mixed signals with the manufacturing sector expanding while the service sector saw a slight contraction. The Caixin China Manufacturing Purchasing Managers' Index (PMI) rose to 51.4, indicating an expansion and marking the highest level since March 2023. Conversely, the Caixin China Services PMI dropped slightly to 52.5. Despite these divergences, overall economic recovery appeared robust as indicated by a composite PMI of 52.8 [para. 1].

Senior economist Wang Zhe from Caixin Think Tank highlighted that both sectors experienced accelerated growth in supply and demand, with manufacturing showing particularly strong production and sales of capital goods. However, challenges such as employment pressures and low price levels persisted, suggesting risks of deflation and weak market expectations [para. 1].

The detailed analysis of the manufacturing sector revealed improvements across several sub-indexes including production, new orders, and export orders—each reaching new highs since early 2023 or late 2020. Raw material prices also increased but factory prices remained under pressure, indicating ongoing challenges in translating supply-demand improvements into broader economic gains [para. 2].

Employment in manufacturing continued to struggle despite overall sectoral growth, with the employment index dropping to its lowest point of the year. This was attributed partly to local capacity competition and lower financing costs which have not yet resulted in increased hiring [para. 2].

On the international front, China's exports grew by 1.5% year-over-year in April 2024, slightly above expectations and reflecting stronger external demand compared to domestic demand. This was supported by similar trends in neighboring countries like South Korea and Vietnam which also reported significant export growth [para. 2].

Despite some positive signs in raw material pricing where indices rose above breakeven points for the first time since November 2023, corporate profits were still pressured due to costs remaining higher than factory prices [para. 2]. Predictions from Ping An Securities suggested that while there might be stability in producer prices month-on-month, a year-over-year decline was expected to narrow down [para. 2].

The services sector managed to stay within expansion territory despite a minor decline in its PMI due to boosts from seasonal mini-holidays like Qingming Festival. Sub-indices for new business and business expectations reached their highest levels since mid-2023 indicating potential for future growth despite current setbacks like falling employment indices [para. 3].

China’s GDP grew by 5.3% year-over-year in Q1 of 2024 but faced challenges such as insufficient effective demand and operational pressures on businesses as noted during a Central Politburo meeting at the end of April [para. 4]. The real estate sector particularly struggled with varying performance across different construction activities; residential building construction notably declined while civil engineering saw improvement [para. 4].

Fiscal policies were discussed with emphasis on issuing special long-term government bonds aimed at supporting infrastructure projects without exacerbating debt risks especially in high-risk provinces [para. 4]. Future policy directions may include easing restrictions on infrastructure investments and focusing more on absorbing existing housing stock rather than just boosting supply through new constructions [para. 4].

Overall, while China’s economy shows signs of robust recovery in certain sectors like manufacturing exports, it continues grappling with internal challenges such as employment pressures and insufficient domestic demand alongside strategic adjustments in fiscal policies aimed at sustainable growth[para. 1][para. 2][para. 3][para. 4].