China’s November retail sales growth fell short of expectations, showing further signs of strain in the economy as the country’s prolonged real estate crisis deepened. This underperformance highlights the continued struggles Beijing faces in its efforts to revive domestic demand and boost economic growth.
The Slowdown in Retail Sales
China’s November retail sales grew by just 3% compared to the same period last year, according to data from the National Bureau of Statistics. This figure fell below economists’ expectations of 4.6% growth and marked a significant decline from October’s 4.8%, which had been the fastest pace since February. The October growth had been partially driven by the Singles’ Day shopping festival, which started earlier than usual in 2023.
Deepening Real Estate Crisis
The real estate sector continued to weigh heavily on China’s economy. From January to November, real estate investment contracted by 10.4%, worsening slightly from the 10.3% drop recorded in the January-October period. Falling home prices and a lack of confidence in the property market have dampened consumer sentiment, further limiting economic recovery.
China’s broader economy has been grappling with multiple pressures, including a long-standing property downturn, high unemployment rates, and increasing local government debt. Despite efforts to stimulate growth, the measures implemented so far have delivered only short-term relief.
Industrial Production and Fixed Asset Investment
On a positive note, industrial production grew by 5.4% year-on-year in November, slightly exceeding expectations of 5.3%. This was also an improvement over October’s 5.3% growth, indicating some resilience in manufacturing activity.
However, fixed asset investment, measured year-to-date, rose by 3.3% through November, missing forecasts of 3.4% growth. This marked a slight slowdown compared to the 3.4% increase recorded for the January-October period.
Stimulus Policies and Persistent Challenges
Signs of economic improvement have emerged in response to stimulus policies rolled out since September, but challenges remain. The National Bureau of Statistics acknowledged that while progress has been made, domestic demand remains insufficient and businesses continue to face operational difficulties.
China’s November retail data highlights a bright spot in the trade-in program for used goods, which boosted sales in certain categories. Sales of home appliances and audiovisual equipment grew by 22.2% in November, furniture sales rose by 10.5%, and car sales increased by 6.6%.
Job Market Remains Fragile
The overall urban unemployment rate remained unchanged at 5% in November. However, the situation among China’s youth remains concerning. The unemployment rate for individuals aged 16 to 24, excluding students, stood at 17.1% in October, following 17.6% in September and a record high of 18.8% in August.
Beijing’s Efforts to Revive the Economy
In response to the stuttering economic recovery, China’s top leadership signaled an urgent shift toward boosting domestic consumption during high-level economic policy meetings last week. Officials emphasized the need for proactive fiscal policies and moderately loose monetary measures in 2024. The policy focus will include stimulating domestic demand, supporting consumption, and addressing ongoing economic pressures.
This marked the first time since the 2008 global financial crisis that China’s leadership has openly described its monetary policy stance as loose. The announcement comes after a series of stimulus measures, including interest rate cuts, eased property purchase restrictions, and the launch of a five-year 10 trillion yuan ($1.4 trillion) fiscal program to address local government debt issues.
Deflationary Pressures and Trade Weakness
Despite these efforts, the latest economic data reflects continued deflationary pressures. Consumer inflation in November slowed to a five-month low, with retail prices rising by just 0.2% year-on-year. Producer prices extended their decline for the 26th consecutive month, signaling weak industrial demand.
China’s trade data also underscored economic challenges. Imports fell by 3.9%, marking the steepest drop since September 2023, as weak consumer demand weighed on purchases. Exports grew by 6.7%, but this too fell short of expectations.
Outlook for 2024
While China’s trade-in programs for cars and appliances have provided some support, broader stimulus efforts have yet to directly target consumption. The recent economic meetings outlined general priorities for next year, but detailed policies are expected to be unveiled at the annual legislative sessions in March.
China’s November retail data indicates that the economic recovery remains fragile, with the real estate slump and weak domestic demand continuing to pose significant challenges. Policymakers face an uphill task in restoring consumer confidence and driving sustainable growth in the world’s second-largest economy.
