China: A good start to Q4 with stronger retail sales

Retail sales performance beats consensus again; production activity remained robust in October. We see upside risk to our annual growth forecast; official target of c.5% is likely to be achieved. We expect policy makers to shift focus to 2025 while ensuring implementation of existing policies, Standard Chartered’s economists Shuang Ding and Hunter Chan note.

Improving consumer sentiment

“October data suggests that China’s domestic momentum improved after the introduction of additional stimulus in late September. Retail sales growth jumped 1.6ppt from September to 4.8% y/y in October, beating market expectations for two straight months, thanks to the consumer goods trade-in programme and the early start of the ’Double 11’ shopping festival, in our view. Services production index growth jumped to 6.3% y/y, the fastest pace this year. In addition, industrial production (IP) remained robust, growing 0.41% m/m, faster than the average of 0.35% in June-August. Monthly GDP growth accelerated to above 5% y/y, according to our estimate, versus 4.6% y/y in Q3.”

“Fixed asset investment (FAI) growth stayed at 3.4% y/y in 10M-2024, supported by resilient manufacturing and infrastructure investment. Meanwhile, YTD real estate investment contracted 10.3% y/y as new starts and construction declined further. That said, housing demand appears to have improved on policy support. The y/y decline in home floor space sold eased significantly in October.”

“Solid September and October real activity data suggests that the official growth target of around 5% is likely to be achieved. We see upside risk to our current 2024 growth forecast of 4.8%. We expect the central bank to lower the reserve requirement ratio (RRR) by 25bps this month to facilitate issuance of local government bonds. Fiscal spending may continue to accelerate, generating a positive fiscal impulse in Q4-2024.”

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