China’s Economic Data Reveals Policy Recalibration and Stability

China has released its economic data of November, offering valuable insights into the direction of China’s economic policy and development priorities.

In a remarkable display of resilience, China’s value-added industrial output – a key metric of economic vitality – grew by an impressive 5.4 percent year on year. This growth narrative is strongly driven by the country’s high-tech and equipment manufacturing sectors, underscoring a shift toward innovation-intensive industries. Among the standout figures, production of new energy vehicles surged by 51.1 percent, a testament to the country’s push toward sustainability. Meanwhile, industrial robots witnessed a striking 29.3 percent rise, and the integrated circuit sector recorded an 8.7 percent increase over a year ago.

These indicators underscore China’s deliberate pivot to technology-centric growth, reflecting its broader aim of fostering innovation capacity to reduce reliance on foreign technologies. This strategic shift not only fortifies its global economic standing but also aligns with long-term objectives of championing the digital and green economy. The November data, therefore, offers more than numbers – it encapsulates a vision of sustained competitiveness and technological advancement for the years ahead.

For the first 11 months of the year, total savings deposits in all financial institutions grew by 6.9 percent, a notable drop from the 12.4 percent recorded during the same period last year. Household deposit growth slowed from 14.9 percent to 10.4 percent, while non-financial company deposits shrank by 2.4 percent, contrasting with last year’s modest 5.2 percent increase. This suggests that relaxed monetary policies are yielding some positive effects, likely nudging money out of the banking system and into the real economy.

Nonetheless, a deeper dive into monetary supply and loan data reveals nuances that warrant attention. M2, a broad measure of money supply that includes cash, current deposits, and time deposits, rose by 7.1 percent, down from last year’s 10 percent. The weaker growth in M2 becomes more concerning when juxtaposed with M0, the most liquid form of money in circulation. M0 grew by 12.7 percent, up from 10.4 percent in the previous year. Typically, M2 and M0 move in tandem, but their current divergence raises questions about the credit-generating capacity of the system. November’s loan data paints a nuanced picture of China’s economic pulse. Cumulative loan growth slowed to 7.7 percent, a drop from 10.8 percent a year ago. These trends signal a tepid credit landscape, emphasizing the urgency for policies to reinvigorate lending activity. In the first 11 months of the year, fixed investment growth edged up to 3.3 percent, modestly surpassing last year’s 2.9 percent but trailing the 4.2 percent seen earlier. Beneath these restrained figures, however, encouraging trends within specific sectors suggest resilience and untapped potential for future economic momentum.

The service sector has emerged as a key driver of China’s economic recovery, with its production index climbing 6.1 percent year-on-year in November. This growth marks a significant acceleration from previous months, showcasing a revival across critical service-based industries. Notable contributions came from real estate, which recorded a 2.9 percent rise, and transportation, warehousing, and postal services, which grew by 6 percent – signals of an economy steadily regaining balance after a volatile period. Further buoying this recovery are industries such as telecommunications, IT services, internet software, financial services, and insurance, all of which surpassed the 55.0 percent benchmark in their business activity indices, reflecting strong momentum. These sectors underscore the robustness of the economy, providing vital support to its broader trajectory. This recovery is not merely about stabilizing the present but about setting a forward-looking foundation. These sectors are positioned to fuel sustained economic growth in the coming years.

The recovery signals reflect the market’s response to major policy interventions implemented during the third quarter. These measures, aimed at bolstering liquidity and restoring confidence, appear to be bearing fruit. With further supportive actions anticipated, the property sector could see sustained recovery and gradual growth moving forward.

Against this backdrop, policies adopted at the Central Economic Work Conference held in Beijing from December 11 to 12 take on heightened significance. Policymakers have committed to a moderately loose monetary policy and a more proactive fiscal policy, marking a shift from the previously “prudent” stance. This recalibration suggests an expanded focus on providing cheaper funds for the real economy while offering lower taxes and fees to spur activity.

China’s November economic data paints a complex but cautiously optimistic picture. While challenges persist in credit creation and the services sector, encouraging trends in investment and nascent stabilization in the property market suggest that the broader economy retains its vitality. As policymakers double down on supportive measures, the groundwork is being laid for sustained recovery and growth in the year ahead.

The article reflects the author’s opinions, and not necessarily the views of China Focus.