Is China’s Economy Losing Steam?

China's factory output was slower than expected and retail sales unexpectedly dropped in October. The world's second-largest economy is losing momentum as it struggles with protracted Covid-19 curbs and a property downturn. Property investment also fell at its fastest pace in 32 months, pointing to further weakness in a sector that accounts for a quarter of the economy.

China's economy is facing a series of headwinds including its zero-Covid policy, a property slump and global recession risks. Recent moves to ease some Covid curbs and provide financial support to the property market have underpinned market sentiment, but analysts expect Beijing's strict Covid policy to continue to weigh on economic activity.

Source: https://www.omfif.org

Industrial output rose 5.0% in October from a year earlier, missing expectations for a 5.2% gain in a Reuters poll and slowing from the 6.3% growth seen in September, data from the National Bureau of Statistics.

Retail sales, a gauge of consumption, fell for the first time since May, when Shanghai was under a city-wide lockdown. Sales dropped 0.5%, against expectations for a 1.0% rise and compared with a 2.5% gain in September.

Covid outbreaks widened across the country in October, disrupting pandemic-sensitive service businesses, such as the restaurant industry. China's catering revenue slumped 8.1%, down sharply from a 1.7% drop in September, NBS data showed. November is shaping up to be even worse. 

Property investment fell 16.0% year-on-year in October — its biggest drop since January-February 2020, according to Reuters calculations based on NBS data. It slumped 12.1% in September. Property sales measured by floor area dropped 23.2% year-year in October, falling for a 15th straight month, with buyers reluctant to take on more debt as the economy slows amid protracted Covid restrictions.

China's property sector has slowed sharply as the government has sought to restrict excessive borrowing. A plan to shore up liquidity outlined by Chinese regulators on Sunday sent Chinese property stocks and bonds soaring on Monday.

However, China's financial regulator said in a notice published that it will allow property developers to access some pre-sale housing funds, as a means to relieve the liquidity crunch.

Fixed asset investment expanded 5.8% in the first 10 month of the year, versus expectations for a 5.9% rise and growth of 5.9% in January-September.

Hiring remained low among companies growing increasingly wary about their finances. The nationwide survey-based jobless rate stayed at 5.5% in October, unchanged from September. Youth unemployment stood at 17.9%, also the same level as September.

The country is on track to miss its annual growth target of around 5.5%, say some analysts. What does that mean for Malaysia? It will be a dampener for our trade and investment numbers. China-Malaysia trade was USD131.2 billion in the first eight months of 2022. The growth was 21.1% on y-o-y basis. In 2021, a total of 43 manufacturing projects were approved from China worth USD3.98 billion and generated nearly 14,000 employment opportunities. A slowdown will therefore impact us in 2023.

Reference:

China’s economy loses steam as factory output, retail sales miss forecast, The Edge CEO Morning Brief, November 16, 2022