After a stronger-than-expected recovery in Q3 of 2022, China’s economy is struggling to accelerate its growth. Several key economic indicators, such as industrial output, retail sales, and fixed asset investment, released by the National Bureau of Statistics on November 15, show a slowdown in growth. The domestic economy is under strain from several factors, including continuing COVID-19 limitations, a weakening property market, a sluggish global economy, and rising inflation rates in foreign markets.
October was an eventful month in China. The 20th National Congress of the Chinese Communist Party was held in Beijing, marking a decisive moment for the future of Chinese politics and policy outlook. During the same month, tourism suffered during a weeklong public holiday as a result of ongoing travel restrictions to manage COVID-19 outbreaks. According to official statistics, tourism earnings for the holiday were only 44 percent compared to the 2019 pre-pandemic levels. Infections have increased in the interim, forcing businesses to temporarily close down.
While certain industries have defied economic challenges to see strong growth in October and the preceding months, such as the green energy and technology sectors, the overall economic scenario is not meeting expectations. The producer price index declined in October for the first time in nearly two years, while exports fell for the first time since May 2020. Moreover, with a modest 0.6 percent yearly gain, the core consumer price index – which excludes food and energy – showed no change from September. As we head into the end of the year, the government has indicated it will roll out further stimulus measures to keep the economy on the uneven road to recovery. At the same time, it will remain committed to the zero-COVID policy and refrain from adopting sweeping stimulus measures.
Below we look at the key economic and trade data for October and discuss how the government plans to steer the country out of the current economic rut.
Economy indicators show tentative growth
Industrial sector output slows, but high-tech sectors continue to thrive
Value-added output of industrial enterprises over a designated size (those with an annual main business income of RMB 20 million, or US$2.9 million, and above) grew by 5 percent year-on-year, slightly missing expectations for a 5.2 percent gain, indicating a slowdown from the 6.3 percent growth seen in September.
Two of the three main industries experienced a growth slowdown, while one accelerated:
- Mining grew by 4.0 percent year-on-year, slowing from 7.2 percent in September
- Manufacturing grew by 5.2 percent year-on-year compared to 6.4 in September
- Electricity, heat, gas, and water production and supply grew by 4.0 percent year-on-year, an acceleration from just 2.9 percent in September
Certain sectors still saw significant month-on-month growth despite the overall slowdown, in particular, green energy and smart products, such as new energy vehicles and solar energy batteries:
- New energy vehicles were up 84.8 percent year-on-year
- Lithium batteries grew by 142.6 percent year-on-year, up from 10.8 percent in September
Meanwhile, growth of the value-added output of the high-end manufacturing industry also outpaced the overall industrial sector, reaching 10.6 percent, growing 1.3 percentage points faster than in September.
The manufacturing purchasing manager’s index (PMI), which gives an indication of manufacturing activity in China, showed a contraction in October at 49.2 percent, down 0.9 percentage points from September.
Retail sales fall amid weak demand, the service sector accelerates its digital transformation
The Index of Service Production (ISP) for October, which indicates the output change of the service industry, increased by 0.1 percent year on year, down from 1.3 percent in September.
Production indicators of the main services sectors still saw positive growth:
- Information transmission, software, and IT services grew 9.2 percent year-on-year, 0.7 percentage points faster than in September
- The financial industry grew 6.4 percent year-on-year, 1.5 percentage points faster than in September
Meanwhile, between January and October 2022, the operating income of service enterprises above a designated size grew 4.7 percent from the same period last year. Among these:
- Information transmission, software, and IT services grew 8.0 percent year-on-year
- Health and social work services grew 8.9 percent year-on-year
- Scientific research and technical services grew 7.9 percent year-on-year
China’s Service Business Activity Index for July, which indicates development in the service sector business activities, was 47 percent. The index for industries including railway and air transportation, catering and hospitality, telecommunications, radio and television, satellite transmission services, ecological protection and public facility management, culture, sports, and entertainment stood at 55 percent, indicating that they are still within the region of expansion.