China’s Economic Recovery Accelerates, but Policy Help Still Needed (AI Translation)

【周刊提前读】11月经济修复提速 政策仍需加码

[para. 1] The article from Caixin Weekly discusses China's economic dynamics as of November 2024, focusing on the manufacturing and services sectors, and the broader economic implications of recent government policies. The Caixin China Manufacturing Purchasing Managers' Index (PMI) for November recorded a notable increase to 51.5, marking an acceleration in the manufacturing sector's expansion. In contrast, the Caixin China General Services Business Activity Index showed a slight decline, indicating a slowdown in services sector growth due to various factors such as the fading holiday effect. Overall, the Caixin China Composite PMI rose to 52.3, the highest in six months, reflecting that growth in manufacturing has outpaced the slowdown in services.

[para. 2] Wang Zhe, a senior economist, explained that recent policy measures have been showing results, aiding the economic rebound observed in November. Positive economic indicators are pointing towards an accelerated recovery, yet challenges such as downward economic pressures, persistent employment issues, and the delayed impact of policies on the labor market remain. The economic recovery appears to be at a short-term bottom, necessitating further consolidation of these gains. The sustainability of the current policies needs scrutiny as the economy faces both internal and external pressures.

[para. 3] In the manufacturing sector, most sub-indices witnessed an upward trend in November. The production and new orders indices increased, with the new export orders index returning to growth, indicating rising domestic and international demand. Costs for raw materials influenced price indices, and rising demand led to companies actively restocking inventory. While the supplier delivery index indicated stabilization, the employment index remained below the growth threshold, showing cautious hiring by companies.

[para. 4] On a broader scale, improvements in manufacturing sentiment are driven by domestic and international factors, including local debt resolution efforts and global trade dynamics. However, concerns remain as certain areas such as construction-related industries show weakening signs. The direction of subsequent policy will be crucial for continued economic momentum. Previously, China's export growth surprised on the upside in October, and similar trends were observed in November's new export orders.

[para. 5] The services sector experienced a slowdown in growth largely due to the diminishing holiday effect, with new orders seeing slight declines even though the employment index stayed stable. Optimism among businesses rose, hinting at improved confidence despite being below long-term averages. Economic recovery, though noted, still requires strengthened foundations as the macroeconomic policy environment continues to evolve.

[para. 6] The Chinese government has undertaken significant fiscal measures to support local governments and restructure debt, with plans involving increased debt ceilings and substantial special bond issuances. These initiatives aim to alleviate fiscal pressures on local governments and stabilize economic growth. Market expectations are positive, with fourth-quarter growth projected to exceed 5%. Nonetheless, the China Macroeconomic Forum cautions that the recovery is uneven, with low consumption and investment growth rates, declining real estate investments, and continued challenges in export growth.

[para. 7] Moving forward, China's economic policy is anticipated to pivot towards leveraging central resources and introducing further supportive measures, including potential changes in fiscal policy and an increase in the deficit rate to stimulate demand and stabilize markets. By 2025, shifts in economic priorities could arise, with ongoing attention needed on real estate and fiscal issues exacerbated by external factors like geopolitical shifts. The proposed fiscal adjustments, including a potential increase in the deficit rate, are vital strategies to sustain economic growth and market confidence.