As Beijing continues to roll out stimulus measures to support economic growth, markets are now focused on the Gross Domestic Product data set to be released tomorrow. The world’s second-largest economy likely grew at its slowest pace in the past six quarters during the third quarter, which may prompt the government to introduce further stimulus measures. 

Economists surveyed by Bloomberg estimate that China's economy grew by 4.5% in the third quarter compared to the same period last year. This would mark the slowest growth rate since March 2023. For the first nine months of 2024, the economy is expected to maintain a growth rate of 4.9%, in line with Beijing’s 5% target. 

Additionally, the industrial production data, which will also be released tomorrow, is expected to show a 4.6% increase in September compared to the same month last year, showing little change from the 4.5% growth recorded in August. Retail sales, a key indicator of consumer demand and a major driver of growth are forecasted to rise by 2.5% year-on-year, accelerating from the previous rate of 2.1%.

On the other hand, fixed asset investment is projected to slow slightly from a 3.4% increase to 3.3%, while real estate investment is expected to contract further, with a decline slowing from 10.2% to 10%. Despite lower interest rates and various measures, the real estate sector continues to face deep contraction. 

Bleak Data and Deflationary Pressures Weigh on China's Economic Recovery

Economists have described the September data released from China so far as bleak. While the Chinese economy struggles with weak domestic demand, external demand is also contracting. This has caused exports, a bright spot for the economy, to sharply slow to 0.3% in September. Additionally, deflationary pressures continue to mount, with consumer price growth slowing to 0.4% and factory gate prices deepening their decline to 2.8%. 

The challenges in China’s economic recovery and the worsening real estate crisis have prompted the government to implement a series of measures since September. These include interest rate cuts, support for the real estate sector, and increased backing for the stock market. 

Following the wave of stimulus measures, optimism about China’s economy has increased, with many investment banks, including Goldman Sachs, raising their growth forecasts for 2024. This optimism triggered a historic rally in Chinese stocks, and by late September, a gauge of Asian currencies had reached its highest level since May 2023. 

However, since the beginning of the month, the lack of details on spending plans in the measures announced by authorities such as the National Development and Reform Commission and the Ministry of Finance has led to disappointment in the markets. This has fueled concerns that Beijing's stimulus efforts may not be enough to reignite growth. As a result, global sentiment has been negatively impacted, and Asian currencies sensitive to the yuan remain under pressure. 

China's Real Estate Stimulus Fails to Impress Markets, Pressure Mounts for Bold Action

The measures announced in a briefing this morning by Housing Minister Ni Hong also failed to meet market expectations. Ni Hong stated that the credit quota for so-called "white list" property projects, aimed at ensuring the completion of unfinished homes and halting the downturn in the real estate sector, would be nearly doubled to 4 trillion yuan. Additionally, it was announced that one million more homes in neglected urban areas would be renovated. 

The announced measures indicate that Beijing is pressuring banks and local governments to provide more funding for the property market. However, for economists calling for direct intervention by the central government and the People’s Bank of China, these steps fall short of expectations. 

Nomura Holdings Inc. estimates that around 3 trillion yuan in direct funding from the central government is needed to ensure the delivery of the estimated 48 million sold but unfinished homes in China. Markets remain unsatisfied with these measures due to the lack of a specific figure for stimulus and the absence of bolder moves. 

In addition, there is criticism that the government remains too focused on the property market and that these incentives will not be sufficient to revive consumer demand. Consumer confidence in China continues to decline, and there is a need to stimulate broader demand for sustainable growth. This situation may increase the pressure on Beijing to take more concrete steps.