This Year’s Economic Growth May Exhibit a U-Shaped Trend (AI Translation)

【周刊提前读】一揽子政策推动供需改善 全年经济增速或呈U型走势

In October 2024, China’s manufacturing and service sectors experienced a measurable upturn, driven by the gradual implementation of incremental economic policies introduced since late September. The Caixin China General Manufacturing Purchasing Managers' Index (PMI) increased to 50.3, marking a return to expansion, while the Caixin China General Services Business Activity Index surged to 52.0, indicating an acceleration in the services sector's growth. Together, these sectors pushed the Caixin China Composite PMI to 51.9, its highest in nearly four months. Economist Wang Zhe highlighted stabilizing market demand, recovering optimism, and the new policies' initial impacts, although challenges in the job market and subdued price levels persist. He emphasized the importance of increasing household disposable income to achieve the full-year economic growth target for 2024 [para. 1][para. 2][para. 3].

The manufacturing sector's recovery in October was reflected in various sub-indices of the Caixin China Manufacturing PMI. Key indices like the manufacturing production index and the production operation expectation index reached new highs due to improved domestic demand. The new orders index also rose, and export orders show improvement despite being within the contraction zone. However, manufacturing employment indices have remained in contraction for two months. Despite these positive developments, Zhang Yu from Huachuang Securities notes that demand in durable goods is being released due to ongoing policy changes [para. 4][para. 5][para. 6][para. 7].

Price indices for China's Manufacturing PMI improved in October, prompting expectations for positive changes in the Industrial Producer Price Index (PPI) and nominal GDP growth. As the nation's National Day holiday approached, the services sector's growth, reflected in sub-indices like the new orders and business expectations indices, was underlined by increased employment despite cautious hiring practices. This is signified by dipping input prices and slightly rising sales prices indices [para. 8][para. 9].

Entering the third quarter of 2024, China’s economic growth decelerated, with GDP growth slowing to 4.6% year-on-year, bringing cumulative growth to 4.8%. Despite the deceleration, quarter-on-quarter growth saw substantial improvement following notable macroeconomic policy shifts at the end of September. These policies, revealed in an article by the Party Leadership Group of the National Bureau of Statistics, are seen as setting the stage for accelerated economic recovery in the fourth quarter. Positive sentiment among industries has increased, boosting production growth expectations among surveyed small and micro enterprises [para. 10][para. 11][para. 12][para. 13].

Yi Xun from Huatai Securities forecasted a rebound in GDP growth rates, envisioning a ‘U-shape’ growth trajectory for 2024. Variations in quarter-on-quarter growth were attributed to domestic demand fluctuations, influenced by macroeconomic policy and real estate market cycles. Prominent incremental policies are expected to address economic pressures, insufficient demand, production challenges, real estate market weakness, and prior market volatility [para. 14][para. 15][para. 16].

Zhang Wenlang emphasized that the latest growth-stabilizing measures differ from previous approaches focusing on infrastructure and real estate. Instead, current policies emphasize consumption. These shifts in focus are supported by new monetary policy tools from the People's Bank of China designed to bolster the capital market. Other short-cycle economic constraints, like contraction effects from the real estate market downturn and insufficient capital formation, underscore the necessity for current targeted policies and rapid economic adjustments [para. 17][para. 18][para. 19][para. 20].

Additional fiscal strategies are being considered to stabilize the economy, including expanding local government debt limits to manage implicit debts. Finance Minister Lan Fo’an outlined other potential measures under consideration for the upcoming Central Economic Work Conference. Mao Zhenhua, chairman of China Chengxin Group, advocated for increased national debt issuance and a higher deficit rate to enhance economic performance [para. 21][para. 22][para. 23].