China’s retail sales grew by a disappointing 3% in November, falling short of the 4.6% forecast in a Reuters poll. This marked a sharp deceleration from October’s 4.8% growth, highlighting a slowdown in consumer spending despite Beijing’s stimulus measures.
The subdued retail performance underscores mounting challenges for the world’s second-largest economy, as a prolonged real estate downturn, local government debt risks, and high unemployment weigh on consumer and business confidence.
Real Estate Woes Deepen
China’s real estate sector continued its decline, with investment falling by 10.4% year-to-date through November, slightly worse than the 10.3% drop reported for the January-to-October period. The property market downturn has been a major drag on overall economic sentiment, eroding household wealth and dampening spending.
Stimulus Efforts Fall Short
While Beijing has introduced a series of measures to revive the economy, their impact has been limited.
- Industrial Production: Industrial output rose 5.4% year-over-year in November, slightly beating expectations but showing only modest improvement from October’s 5.3% growth.
- Fixed Asset Investment: Year-to-date fixed asset investment grew by 3.3%, narrowly missing the 3.4% forecast.
- Consumer Inflation: Retail prices rose by just 0.2% in November, marking a five-month low. Producer prices extended their 26-month deflationary streak, reflecting persistently weak demand.
My Bui, an economist at AMP, noted that while China’s GDP is on track to grow by 5% in 2024, weak consumption sentiment driven by falling home prices remains a significant challenge.
Sector-Specific Gains Provide a Bright Spot
Amid the broader consumption slump, targeted programs have delivered localized benefits.
- Home Appliances & Audio-Visual Equipment: Sales surged 22.2% in November, supported by a trade-in program for used goods.
- Furniture & Cars: These categories recorded growth of 10.5% and 6.6%, respectively.
However, these gains have not been enough to offset sluggish demand in other areas.
Labor Market Remains Fragile
Unemployment among urban residents aged 16 and above held steady at 5% in November, unchanged from October. However, youth unemployment remained elevated, with rates of 17.1% in October and 17.6% in September. The rate peaked at a record 18.8% in August.
Economic Policy at a Crossroads
At high-level economic meetings last week, Chinese leadership emphasized the urgency of addressing the country’s economic slowdown. Officials pledged to adopt “proactive fiscal tools” and “moderately loose” monetary policies in 2025, with a renewed focus on boosting consumption and demand.
This marks the first acknowledgment since 2008 that monetary policy may need to remain loose for an extended period.
Key Measures Announced:
- Interest Rate Cuts: Aimed at supporting borrowing and spending.
- Property Rule Loosening: Designed to stimulate home purchases.
- Debt Relief Program: A five-year, 10 trillion yuan ($1.4 trillion) initiative to tackle local government debt.
Despite these measures, consumer sentiment remains weak, and imports fell by 3.9% in November, the sharpest decline since September 2023. Exports rose by 6.7%, but this was below expectations.
Looking Ahead
While China’s leadership has outlined broad economic priorities for 2025, specifics will only emerge at the annual legislative sessions in March. Analysts caution that the effectiveness of stimulus efforts will hinge on targeted measures to directly boost household consumption.
For now, deflationary pressures, sluggish retail growth, and a struggling property market point to a slow and uneven recovery for China’s economy.
