China is grappling with economic hurdles as its manufacturing sector experiences a fourth consecutive month of contraction and the property market continues to deteriorate. In August, factory activity declined, signaling deepening deflationary pressures, while the residential market saw a further slump due to expectations of decreasing prices. Despite government efforts to stimulate the economy, including recent measures to support the property market, the overall outlook remains uncertain.
Economists at leading financial institutions like UBS Group AG and JPMorgan Chase & Co. are skeptical that China will meet its growth target of around 5%. Some experts are advocating for increased stimulus to bolster sentiment and spur economic growth. Bloomberg Economics analysts Chang Shu and Eric Zhu emphasized the need for more policy support to revitalize the economy, with government spending playing a crucial role in boosting aggregate demand.
Official data revealed that the manufacturing purchasing managers' index fell to 49.1 in August, below expectations, with components such as input costs and output prices registering declines. Meanwhile, the non-manufacturing index, which includes construction and services, inched up to 50.3 due to increased consumer spending during the summer holiday period.
As trade tensions with the US and Europe escalate, China's manufacturing sector faces additional challenges. The outcome of the US election looms large, with potential policy shifts depending on which candidate emerges victorious. Concerns about the property market persist as well, with new-home sales plunging and real estate companies forced to consider price reductions to stimulate demand.
To counter these headwinds, China is contemplating measures like allowing homeowners to refinance mortgages to reduce borrowing costs and boost consumption. Analysts believe this could benefit households and support spending, although the overall impact may be limited given the current consumption landscape.
Despite Finance Minister Lan Fo'an's assertion that the economy is still growing at 5% and showing stability, experts argue for a more robust government response. With fiscal policy perceived as restrictive and external demand potentially weakening, calls for increased support to stabilize the economy are growing louder. Pinpoint Asset Management's Zhiwei Zhang stressed the need for a more supportive fiscal policy stance, especially considering the potential slowdown in exports amid global economic uncertainties.