China: Reassuring signs of improvement

Activity indicators for October showed encouraging signs of accelerating growth. The support policy measures implemented by the authorities are finally beginning to bear fruit. However, the improvement is not widespread, as deflationary pressures persisted and credit growth continued to weaken.

In the services sector, growth accelerated to +6.3% y/y in October, compared with +5.1% in September and +4.7% on average over the previous four months. This renewed vigour was driven in particular by retail sales, which were encouraged by periods of sales and the continuation of government-subsidised durable consumer goods “trade-in programmes”. The property market also showed some signs of improvement: the contraction in sales volumes fell to -1.6% y/y, compared with -12% in Q3. However, construction activity (starts and completions) continued to fall sharply in October.

In the industrial sector, growth stood at +5.3% y/y in October, virtually unchanged from September (+5.4%), after four months of slowdown. It was notably driven by the solid performance of goods exports, which rebounded in October in both volume and value terms (+12.7% y/y in current USD, after +4.6% y/y on average over the first nine months of 2024).

Between now and the end of the year, the more favourable growth momentum in services and industry is expected to continue. The manufacturing sector should benefit from an upturn in export orders, in anticipation of the US tariff hikes promised by Donald Trump. Domestic demand should continue to strengthen, albeit moderately. A number of factors are indeed still holding it back: private sector confidence remains weak, the necessary adjustments in the property sector are not yet complete, conditions on the labour market continue to deteriorate and are constraining income growth, and deflationary pressures persist and are weighing on corporate profits. In fact, producer prices fell in October (-2.9% y/y) for the 25th month in a row, consumer price inflation eased (+0.3% y/y after +0.5% in Q3) and core inflation remained low (+0.2% y/y).

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