China’s whimper of growth after months of malaise has failed to convince many consumers, experts and investors that the economy is getting stronger.
Barron’s has been tracking sentiment during the post-pandemic period through follow-up conversations with a number of consumers and small businesses. The result is that they see no improvement in their financial situation.
“For me and most of my friends in this area, we are just not as busy as we were before the pandemic,” said Xiao Gai, a 32-year-old art director from the western metropolis of Chongqing, in a telephone interview.
Asked whether factors such as the explosion of AI tools could be responsible for the decline in customer inquiries, Xiao said: “Everyone uses AI to some extent. But it’s more about smaller budgets with the customers I’ve spoken to, which leads to smaller projects for us.”
Guo Qingfeng, an IT worker at a major technology company in Beijing’s “Silicon Valley” known as Zhongguancun, said promotions at his company had been frozen since April, around the time it became apparent that China’s economic recovery was just a blip be best. “The workload has increased, but the pay has not,” he said.
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The huge real estate market’s refusal to respond to stimulus measures continues to slow the economy. House prices fell by the most in eight years in October, with new home prices in 70 cities falling 0.38% last month after falling 0.3% in September, according to data from the National Bureau of Statistics on Thursday showed.
This came despite a series of policy support measures, including lowering down payments for homeowners and requiring lenders to cut mortgage rates in September.
Beijing said it plans to provide at least 1 trillion yuan ($138 billion) in funding for affordable housing programs. But temperature measurements in other sectors do not provide a clear forecast.
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Official data this week showed that the widely followed consumer sector performed better than expected in October for the second month in a row. Last month’s 7.6% year-on-year growth in retail sales beat market expectations of 7%. However, much of this was due to a small base effect from last year. How high the actual growth is is difficult to measure.
Private surveys of consumer demand and business sentiment show pessimism. Sentiment among private companies fell in October, according to a survey by the Cheung Kong Graduate School of Business.
Consumer demand for leisure and transportation also fell slightly last month, according to data from French fintech research firm QuantCube Technology.
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The markets still seem confused. April’s weak data also points to a downward trend in mainland and Hong Kong indices, with the large-cap CSI 300 index down nearly 8% this year and the Hang Seng index down 11.8%.
The rise in October was largely due to investors buying at what appeared to be a bottom. But markets have only fallen since Wednesday beat forecast figures for retail sales and industrial production.
That’s partly because China’s persistent deflation means increases in production and export volumes are almost meaningless as their prices fall.
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“Chinese markets have performed terribly because China’s economy obviously looks terrible. And Hong Kong, made up mostly of mainland Chinese firms, is essentially a proxy for China,” said Doug Young, director of Hong Kong-based Bamboo Works, which provides analysis on Chinese companies listed in the city.
The ongoing support from politicians, which is primarily aimed at the infrastructure and real estate sectors, has so far maintained a certain level of reluctance among experts and investors.
The International Monetary Fund cited the prospect of continued measures through the end of the year from 5% to 5.4% as the reason for raising its forecast for China’s economic growth in 2023.
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“Authorities have introduced numerous welcome measures to support the real estate market,” IMF Deputy Managing Director Gita Gopinath said in a statement. “But more is needed to ensure a faster recovery and lower economic costs during the transition.”
Others are equally ambiguous. The latest data shows continued weakness, but it could have been worse, said Sheana Yue, China economist at Capital Economics. However, growth remains sufficiently concerning that supportive policies could be strengthened, she said in a note.
But for some, China’s problems are clearer because they are systemic.
“The problems facing the Chinese economy are not the result of recent political changes,” said Beijing-based economist Michael Pettis. “They are the almost inevitable result of deep imbalances that go back almost two decades and were obvious to many economists well over a decade ago. These are also the problems faced by every country that has followed a similar growth model.”
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