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L-shaped recovery in China expected
Asia investment

L-shaped recovery in China expected

The Biden-Xi meeting on the sidelines of the APEC meeting has seemingly improved communications mainly on geopolitical and military matters.
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23 NOV, 2023

By Generali Investments

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Christoph Siepmann, Senior Economist at Generali Investments

The Biden-Xi meeting on the sidelines of the APEC meeting has seemingly improved communications mainly on geopolitical and military matters. Economically, one of Xi’s motivations may have been to calm the clash over technological leadership in times of economic weakness at home.

Indeed, latest October data remained mixed. Service consumption (19% yoy ytd) benefitted from a holiday boost, helping to improve retail sales (7.6% yoy). IP advanced only very limitedly, given the headwinds from deteriorating exports (-6.4% yoy). Investment growth disappointed (2.9% yoy ytd) with property investment (-11.3% yoy) being the main drag.

However, we expect China’s economy to respond to the flurry of recent incremental support measures, going forward. The decision to issue RMB 1tr in sovereign bonds and to bring forward local governments bond issuances will help infrastructure spending. And Beijing seemingly is mulling more measures like another RMB 1tr in support for affordable housing and urban renewal projects via better credit conditions.

Beijing may also deploy special measures to improve funding above the expected 15 bps MLF and 50 bps RRR cuts. However, we still doubt a “big bang” which could lift sentiment and thus stick to the view of a protracted, L-shaped recovery well into next year.

China: Retail Sales
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