Aidan Yao

The View | Why consumption stimulus is still China’s best option to revive its economy

What ails China’s economy is a deficiency of demand, making fiscal transfers to boost domestic spending the right cure

A consumption-led recovery is not only consistent with Beijing’s goal of rebalancing the economy, but will also help address China’s trade imbalance with the US and strengthen relations with its regional partners

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Customers queue at an Apple store in Beijing, on the first day of sale of the iPhone 15 smartphone on September 22. In boosting demand, China should focus on spurring domestic spending, whether by governments or households. Photo: Bloomberg

Aidan Yao

Published: 3:30pm, 27 Sep 2023

The latest economic data for August shows some tentative signs of stabilisation in the Chinese economy. Virtually all activity indicators surprised on the upside, with some even pointing to sequential growth acceleration. Notably, retail sales growth almost doubled to 4.6 per cent, while export growth contraction eased by almost half to minus 8.8 per cent.

Industrial production growth quickened by 0.8 percentage points to 4.5 per cent. The faster recovery in demand than supply points to a more balanced economy, helping to pull the consumer price index out of deflation and narrowing the decline in the producer price index for the second consecutive month.

The piecemeal policy easing is starting to add up. Credit growth accelerated last month for the first time in five months, helping to bolster manufacturing investment and big-ticket consumption. Faster local government bond issuance also supported infrastructure investment despite still flagging land sales.

Even the property market saw some signs of life, with year-on-year contraction of house sales, starts and investment all easing after Beijing loosened purchase and lending restrictions.

In all, it’s hard to fault the broad-based improvement shown in the August data. However, one data point does not make a trend. Given how downbeat sentiment is, it would likely take more than one month of data – and more forceful policy easing – to convince sceptics that the worst is over. The mixed, and somewhat muted, reaction to the data surprise suggests scepticism still abounds.

Therefore, what is needed to decidedly turn around the economy remains a hot debate. Some have advocated blanket support to circuit-break the property market decline, given the importance of the sector for economic and financial stability.