China’s Economic Data for August 2024

The data for China’s economic activity in August 2024 was weaker than expected. The highlights of the report include:

1. GDP Growth Forecast:
   • China’s GDP growth is forecasted to slow to +4.6% in 3Q 2024, down from +5.0% in 1H 2024.
   • The weaker data across various economic indicators contributes to this lowered forecast.

Key Economic Indicators:

1. Industrial Production:
   • Growth Rate: Industrial production growth in August was +4.5% year-on-year, which was below the market consensus of +4.7% and lower than the +5.1% recorded in July.
   • Key Sectors:
     • High-tech Manufacturing: High-tech products, such as IC chips, recorded robust growth at +8.8%.
     • Heavy Manufacturing: The construction-related materials sector saw a sharp decline, with steel production down -10.4% and cement production down -11.9%.
     • Automobile Sector: The auto sector posted a second consecutive month of contraction, with domestic vehicle sales dropping -2.3% year-on-year. However, the new energy vehicles segment grew by +30.5% year-on-year.
2. Retail Sales:
   • Growth Rate: Retail sales grew by +2.1% year-on-year, which was lower than the market expectation of +2.7% and also down from +2.5% in July.
   • Discretionary Spending: Consumer discretionary spending on items such as clothing, footwear, cosmetics, and jewelry saw declines.
   • Consumer Confidence: Amid a worsening job market, consumer confidence fell to 86.0 points in July, the lowest level since the economy reopened.
3. Housing Market:
   • New Home Prices: The prices of new homes fell by -5.7% year-on-year in August, marking the steepest decline since June 2015.
   • Secondary Home Prices: Prices in the secondary home market performed even worse, falling by -8.6%, the sharpest drop since records began in 2011.
4. Fixed Asset Investment (FAI):
   • Growth Rate: FAI growth slowed to +3.4% year-on-year for the first eight months of 2024, which was slightly below market consensus of +3.6%.
   • Sectoral Breakdown:
     • Manufacturing Sector: Supported by investments in the manufacturing sector.
     • Private Sector FAI: The private sector saw its FAI contract by -0.2% year-to-date (YTD).
     • State-Owned Investment: State-owned investment increased by +6.0% YTD, although at a slower pace.
     • Foreign Direct Investment (FDI): FDI fell significantly, with foreign-funded FAI contracting by -17.7% YTD, reflecting declining interest from foreign investors.

Policy Implications:

1. Fiscal and Monetary Policy:
   • The Chinese government initially pledged to implement a “proactive fiscal policy and prudent monetary policy” at the start of the year, but fiscal spending has lagged.
     • General Fiscal Spending: For January-July 2024, general fiscal spending increased by +2.5%, which is less than half the pace of last year (+5.4%).
     • Special Bonds: Local government bond issuance was also slow, with 58% of the annual quota used up by the end of August.
2. Maybank IBG Research Outlook:
   • The People’s Bank of China (PBOC) may lower the reserve requirement ratio (RRR) by 50 basis points (bps) to 9.5% in 4Q 2024.
   • A cut in the 1-year Loan Prime Rate (LPR) by 25 bps is expected in 1Q 2025.
   • However, the effectiveness of these monetary easing policies may be limited due to weak demand for credit from households and businesses, who are more focused on reducing debt.
3. Future Measures:
   • Maybank IBG Research expects more significant measures to support domestic demand, possibly to be announced during the Politburo meeting in October or November 2024.

Outlook for 2024 and 2025:

• The GDP growth forecast for 2024 is maintained at +4.8%, with a possible downside risk.
• The growth forecast for 2025 is expected to moderate to +4.3%, reflecting continued challenges in the domestic economy.

Conclusion:

The August 2024 data points to continued weakness in key areas of the Chinese economy, including industrial production, retail sales, housing prices, and fixed asset investment. The government’s delayed fiscal response, combined with reduced consumer confidence and declining FDI, indicates that more robust policy measures may be needed to achieve growth targets.

Upcoming Key Economic Events:

1. 20 September 2024 – Announcement of the 1- and 5-year Loan Prime Rate.
2. 27 September 2024 – Release of the YTD Industrial Profits for August.

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