INSIGHT: China economy ends 2024 on mixed note amid Trump 2.0 concerns

SINGAPORE (ICIS)–China’s economic data in November were mixed, with weaker retail sales growth offset by some signs of stability in property prices and a slightly quicker industrial output growth, as policymakers brace for more US trade tariffs once President-elect Donald Trump takes office for a second time.

• Policy support to ramp up in coming months ahead
• Retail sales unexpectedly slowed in November
• Trump 2.0 adds significant risk to trade

China’s November property market data showed signs of stabilization, with rates of declines for both new home and used home prices easing from the previous month to 0.2% and 0.35%, respectively.

These were the smallest rates of decline recorded since June 2023 for new home prices and in May 2023 for used home prices, data from China’s National Bureau of Statistics (NBS) showed on 16 December.

The numbers suggest the market may be bottoming out, with 21 of 70 cities reporting steady or rising new home prices, the highest proportion this year.

Property investment in the country, however, continued to contract at double-digit rates in November, falling by 10.4% year on year, with new residential starts and completions contracting by 23.1% and 26.0%, respectively.

“Real estate investment still likely faces some hurdles before it is no longer a headwind on growth – prices have not yet stabilized, but property inventories are still relatively elevated at this stage, and property developer sentiment remains cautious,” Dutch banking and financial services firm ING said in a note.

“A second consecutive month of improving price data is a positive signal for the property market bottoming out, and we expect a trough to be established in 2025 and the start of an L-shaped recovery to take effect.”

RETAIL SALES GROWTH SLOWS
Meanwhile, China’s November retail sales growth surprisingly slowed to 3.0% year on year, down from October’s stronger-than-expected 4.8%.

Trade-in policies continued to boost specific sectors in November, with household appliances posting a robust 22.2% year-on-year growth, albeit slower than previous months’ increase.

Meanwhile, November automobile sales on a year-on-year basis surged to a nine-month high of 6.6%, coming from a 3.7% expansion in October.

In contrast, petroleum and related products struggled, recording a 7.1% year-on-year contraction, as the transition to electric vehicles gains momentum.

Household confidence clearly remains soft and it remains to be seen if the “vigorous support” for consumption promised next year will be effective in stimulating a recovery, according to ING.

“We expect the rollout of supportive policies could take some time, but overall retail sales growth should recover in 2025.”

INDUSTRIAL PRODUCTION EDGES HIGHER
China’s industrial output showed a modest improvement in November, with the headline growth edging up to 5.4% year on year from 5.3% in October.

“Export demand has been a contributor to solid industrial production growth in 2024, but this factor is expected to weaken somewhat in 2025 as tariffs set in,” ING said.

The auto sector was a key driver, with output growth accelerating to 15.2% year on year in November, up from 4.8% in October.

This uptick was mirrored in November passenger car output, which surged 14.1% year on year, nearly double the 7.7% growth seen in October, according to data from the China Passenger Car Association (CPCA).

POLICY SUPPORT TO RAMP UP IN 2025
“Despite data coming in a little softer than expectations, with only one month of data still to come, China will likely manage to complete its ‘around 5%’ growth objective for 2024,” ING said.

At the Central Economic Work Conference (CEWC) held on 11-12 December, China’s top leadership pledged to implement robust policy support measures in 2025.

Heading into the conference, much of the attention centered on the scale of stimulus needed to bolster China’s growth.

While the CEWC affirmed the need for more robust support measures, it remained tight-lipped on specifics.

Detailed economic and social targets will be unveiled at the National People’s Congress (NPC) in March 2025, with concrete policy measures likely to follow.

China’s fiscal deficit target and the special government bond issuance targets were both raised at the CEWC, which along with November’s Chinese yuan (CNY) 10 trillion debt package should create more room for fiscal stimulus in 2025, according to ING.

“The speed and scale of domestic stimulus will likely play the biggest role in determining whether or not China’s economy will be able to maintain stable growth,” it said.

“The eventual growth target setting at next year’s Two Sessions meetings in March will give a better indication of how confident policymakers are in terms of growth stabilization.”

The Two Sessions are the annual gatherings of China’s top legislative and advisory bodies, the National People’s Congress (NPC) and the Chinese People’s Political Consultative Conference (CPPCC), during which key policies, laws, and leadership appointments are discussed and approved.

To achieve this, the government is likely to expand its successful equipment upgrading and consumer goods trade-in program beyond automobiles and home appliances, Ho Woei Chen, an economist at Singapore-based UOB Global Economics & Markets Research, said in a note on 13 December.

Future initiatives may encompass a broader range of categories, including services such as tourism and entertainment, as well as emerging areas such as digital and green consumption, Ho said.

Additionally, investments in technological innovation, industrial upgrading, and domestic infrastructure – including transportation, energy, and urban renewal projects – are expected to receive a significant boost, she added.

“We do expect Beijing to ramp up fiscal deficit and fiscal spending in 2025, but we believe how to spend might be even more relevant than how much will be spent, because this is not a typical downcycle for China,” Japan’s Nomura Global Markets Research said in a note.

“Due to the property meltdown, fiscal issues and worsening tensions with the US, China’s economy is not in a normal downcycle, so it may take much more than the recent ‘bazooka’ stimulus package to truly reboot the economy.”

A meaningful recovery in China in 2025 will likely require Beijing to tackle several key challenges, including clearing the property market backlog, reforming the fiscal system, strengthening the social welfare system, and easing geopolitical tensions, Nomura noted.

“We remain cautious on Beijing’s resolution in clearing the property sector, which has been contracting for almost four years, as the CEWC mentioned little new measures to clear property markets. The CEWC memo did mention reforming the fiscal system, but no details were provided.”

THE NEW CHALLENGE IN 2025: TRUMP 2.0
Trump’s victory, coupled with a Republican sweep in the US sets the stage for significant trade policy shifts in 2025 for the world’s biggest economy, as concerns rise over the potential imposition of 60% tariffs on Chinese goods.

Nomura expects tariffs to be introduced in a phased manner throughout 2025, mirroring the gradual rollout seen during Trump’s first term.

“We assume the actual implementation that would directly impact China’s exports to the US will occur from around mid-2025 and will be mostly concentrated in H2 2025, with some front-loading in H1 2025,” it said.

“There is a possibility that the incoming Trump administration may take action to tackle the issue of Chinese export rerouting to the US via third countries, and we believe such a threat is a real risk to China’s export growth over the next couple of years.”

Nomura predicts China’s export growth will experience a temporary surge, rising to 8.5% year over year in Q4 2024, up from 6.0% in Q3 2024.

This increase is attributed to frontloading, as Chinese exporters rush to avoid the US tariffs in 2025.

However, Nomura expects export growth to slow significantly in 2025 due to the anticipated trade headwinds and the frontloading that occurred in Q4 2024.

Insight article by Nurluqman Suratman

Thumbnail photo: A commercial housing building under construction in Nanjing, China. (Source: Costfoto/NurPhoto/Shutterstock)