China’s Economy Stumbles After Unprecedented Slump in Investment
Pudong’s Lujiazui Financial District in Shanghai, China.
(Bloomberg) — China’s economic activity cooled more than expected at the start of the fourth quarter, with an unprecedented slump in investment and slower growth in industrial output adding to a drag from sluggish consumption.
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Fixed-asset investment shrank 1.7% in the first 10 months of the year, a record decline for the period, according to data released by the National Bureau of Statistics on Friday. Bloomberg Economics estimates investment dropped as much as 12% in October, extending its streak of declines into a fifth straight month.
Industrial production climbed 4.9% last month from a year earlier, the smallest gain since the start of this year. The median forecast of economists in a Bloomberg survey was for an increase of 5.5%.
The world’s second-largest economy entered the final quarter on a weakening trajectory, after expansion moderated over the previous six months. China is more vulnerable after a surprise contraction in exports that, if sustained, would leave it more exposed to a slowdown in domestic demand.
“Growth momentum has clearly dissipated in October,” said Raymond Yeung, chief economist for Greater China at Australia & New Zealand Banking Group Ltd. Government efforts to tackle overcapacity and excessive competition have “impacted the investment pipeline,” he added.
The market had a muted reaction to the disappointing data, with the yuan and government bonds trading little changed. The CSI 300 Index of stocks was down 0.7%, after a 1.2% advance on Thursday.
Capital spending on infrastructure barely increased and growth in manufacturing outlays slowed, while property investment slid further.
Retail sales gained 2.9%, slowing for the fifth straight month in the longest such streak since 2021. The surveyed urban unemployment rate dropped slightly to 5.1%.
“The economy is facing quite a few challenges given the multiple unstable and uncertain factors in the external environment and rather big pressure on economic restructuring within the country,” the NBS said in a statement accompanying the data release.
It added that officials would “actively facilitate the implementation” of existing policies, likely suggesting Beijing isn’t yet in a hurry to provide more help for the economy.
What Bloomberg Economics Says…
“China’s October data showed momentum softening into the fourth quarter — but not enough to prompt fresh stimulus for now. On the one hand, holiday distortions likely exaggerated the slowdown. The sharp pullback in production and exports probably reflected payback after factories brought orders forward to September ahead of the holiday. Average output growth in September and October was still faster than in August.”
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Tensions with the US over trade escalated last month, before a deal reached later in October by Presidents Donald Trump and Xi Jinping at talks in South Korea. Lower tariffs hold out the prospect of boosting trade between the rival superpowers in the months ahead.
Domestic demand has been weakening across the board, with contracting investment compounding the impact of subdued consumer confidence. That’s making it harder to address the concerns of trading partners over an influx of Chinese exports squeezing local industries.
Under pressure from feeble consumer and business confidence, borrowing demand has failed to pick up, with new loans and credit growth falling short of forecasts in October. Even the rollout of funding provided under China’s new policy financing tool worth 500 billion yuan has seemingly had little impact on lifting investment for now.
“The government’s stimulus measures have been slow to feed into the economy,” said Michelle Lam, Greater China economist at Societe Generale SA, referring to the weak credit numbers. With the distribution of the 500 billion in funding, “I do think we should see better momentum over the coming months.”
While a high comparison base and one fewer working day are partly to blame for the slowdown in October, the extended deceleration in retail sales shows the importance of ramping up support for households.
Some economists are expecting the government to expand its program of subsidies for consumer goods to include some services. But more sustainable measures are needed, such as long-term reforms to China’s income distribution and social security system, as the country prepares to launch its next five-year development plan in 2026.
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In the absence of a broader initiative to boost consumption, the authorities have acted swiftly to stem the decline in investment.
A total of 1 trillion yuan in stimulus has been approved since the end of September to spur capital expenditure and replenish local coffers, with the effects likely to become more evident in the coming weeks.
The prospect of further monetary easing has dimmed, however, after the Chinese central bank this week suggested it was unconcerned over slower loan growth.
More importantly, Beijing’s economic growth goal of around 5% in 2025 still looks within reach, especially if the outlook for exports improves following the trade truce with the US. The current consensus forecast among analysts projects an expansion of 4.9% for this year.
“It looks like the 2025 growth target will be reached without much intervention,” said Lynn Song, chief Greater China economist at ING Bank NV. So Beijing will “probably save ammunition for next year.”
–With assistance from Nectar Gan.
(Updates with economist comments starting in fifth paragraph.)
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