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China’s factory activity strengthened in October for the first time in six months, a reassuring signal for policymakers preparing crucial fiscal policies to support the world’s second-largest economy.
The figures represent the last data release before next week’s meeting of the Standing Committee of China’s rubber-stamp parliament, the National People’s Congress, and are expected to confirm the scale of fiscal spending aimed at boosting economic growth. .
This month’s Official Purchasing Managers Index, released Thursday, was 50.1, higher than September’s 49.8 and higher than the average estimate of 49.9 among analysts compiled by Bloomberg. A number above 50 indicates expansion from the previous month.
October’s non-manufacturing PMI came in at 50.2, slightly below analysts’ expectations of 50.3, but also above September’s reading of 50, as underlying domestic consumption remains weak.
Analysts say China needs up to 10 trillion yuan (1.4 trillion yuan) over three years to restore confidence among domestic consumers, whose wealth has been hit by a deep downturn in the real estate sector and job and salary cuts. It is estimated that the company will need to spend $10,000.
But many believe the government will spend the bulk of next week’s stimulus package on repairing municipal balance sheets through debt swaps and on buying land and unsold apartments to ease the downturn in the real estate market. I believe that the funds will be allocated to providing funding for
Authorities announced the first financial stimulus package targeting stock markets and interest rates in late September, sending China’s benchmark CSI300 stock index soaring as retail investors returned to the stock market.
Analysts at Morgan Stanley said ahead of Thursday’s data release that economic activity was likely driven by “accelerated fiscal deployment of infrastructure projects” as the government accelerated spending in the final months of the year to meet growth targets. He said he felt supported.
China’s economic growth rate in the third quarter was 4.6% from a year earlier, falling short of the official full-year target of 5%.
Expectations of further government action have been raised after a much-anticipated conference by state planners failed to signal stronger fiscal support, disappointing investors and sending stock prices lower.
The Treasury Department then signaled this month that the planned fiscal stimulus would focus on local governments. Many local governments rely on property sales for income, a sector that has been devastated by three years of economic downturn.
Rebuilding local government finances will allow them to pay backlogs to local suppliers and employees, and restart investment.
But economists say replacing existing local government debt with new debt would not be a stimulus because it would not involve any additional spending.
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Nomura economist Ting Lu commented on a Reuters report this week that 6 trillion yuan of the planned economic stimulus package would be in the form of local government debt swaps, saying that this would mean “no additional borrowing.” “It is not considered an economic stimulus package.”
What is needed instead, economists say, is direct support to households in the form of improved social welfare, health programs and other services that give families the confidence to spend again.
Qi Lo, senior market strategist at BNP Paribas Asset Management, said the Chinese government has “multiple policy objectives beyond maintaining economic growth,” including “implementing structural reforms and reducing financial risks.” did. He added that the government “doesn’t have any fiscal spending targets.”
