China’s Economic Activity Slowed in November on Property Slump, Weak Consumption
HONG KONG - China's economic activity slowed in November amid a sustained slump in the housing sector and sluggish consumer recovery, making Beijing even more urgent to step up efforts to prop up the world's second largest economy.
Leading indicators of consumption and investment continued to weaken from October, while factory output rose faster in November as the power crisis subsided, China's National Bureau of Statistics said on Wednesday.
Industrial production rose 3.8% year-over-year in November and accelerated from 3.5% in October, a rare ray of hope in China's economy as efforts to alleviate electricity shortages spurred increased coal production in recent weeks.
Nevertheless, a sustained decline in real estate continued to weigh on overall investment. Consumer spending, a laggard in China's recovery from the pandemic, also showed new signs of slowing.
Fixed investment rose 5.2% in January-November, compared with 6.1% in the first 10 months, official data showed. The measured value corresponded to the expectations of the economists surveyed.
New home prices, which began to fall in September, continued to decline last month as home buyers became increasingly concerned about the financial health of developers.
New home prices fell 0.33% in November from October in 70 cities, the largest monthly decline in about six years, according to calculations by the Wall Street Journal based on official data released Wednesday.
Housing starts by property developers, which provide jobs for migrant workers and fuel China's demand for raw materials, declined 9.1% year-over-year in January-November and widened year-over-year from 7.7% in the first 10. from months of the year.
Retail sales, a proxy for China's consumption, rose only 3.9% yoy last month, compared to 4.9% yoy in October and lower than the 4.5% increase expected by economists surveyed by the Journal. China's tough Covid-19 restrictions affected sectors like the hospitality industry, where sales fell 2.7% in November, a more steep decline from a 2% decline in October.
A shopping complex in Beijing.
Photo: TINGSHU WANG / REUTERSThe latest economic data suggests a further slowdown in the Chinese economy, which began to stutter in the third quarter due to an electricity crisis that is curbing factory production and sporadic Covid-19 outbreaks that hampered consumption. The ongoing downturn in the extensive real estate market, triggered by the liquidity crisis of highly indebted property developers such as the China Evergrande Group Co. has also weighed on the economy.
China's policymakers have signaled in recent weeks that they will focus on propping up the economy and taking further action to cushion the blow of a rapidly cooling real estate market.
At the Central Economic Work Conference that ended last Friday, China's top leadership emphasized stability as a top priority for the economy over the next year, signaling a shift in political focus after a series of regulatory raids on the technology, education and real estate industries this year the economy is on shaky ground.
"China is likely to be more proactive in fiscal policy next year," said Shuang Ding, an economist at Standard Chartered Bank, adding that rising inflationary pressures over the next year will likely limit the central bank's leeway in easing monetary policy.
Beijing will likely set a growth target of 5% or more for 2022, which could motivate local governments to increase budget spending to meet the targets, Ding said. Relatively sluggish spending by local governments has curbed economic growth this year, he added.
Last week, China tried to free up more liquidity in the financial system by lowering the reserve requirement ratio or the amount of cash banks must hold in reserve. Some economists assume that China could further lower the reserve requirement ratio and even lower key interest rates in the coming months. Authorities have eased restrictions on mortgage loans and are expected to further ease policies on the housing market.
However, economists broadly believe that a trio of headwinds highlighted by authorities at last week's meeting - declining demand, supply-side shocks, and falling expectations - will be fueled in the coming months by the uncertainty surrounding the Omicron Covid- 19 variant could be tightened.
Medical staff performed Covid-19 tests on December 12 in Ningbo, Zhejiang province.
Photo: STRINGER / ABOUT REUTERSThe discovery of more than 200 Covid-19 cases in China's eastern Zhejiang Province in the past 10 days prompted officials to temporarily close some factories, threatening to disrupt production at one of the world's largest manufacturing bases.
At least 20 manufacturers based in Zhejiang, a large manufacturing region that makes a range of products such as textiles and LED lights, halted production last week after local officials said the company imposed bans. Most companies did not disclose when the factories would reopen, but assumed the disruption would be short-lived.
The recent Covid-19 outbreaks suggest consumer caution will remain and further supply chain disruptions are a "significant possibility," wrote Capital Economics economists in a note on Wednesday.
As China's economy slows, officials and economists have become increasingly concerned about the strength of the labor market, which is showing some signs of stress.
The surveyed unemployment rate in urban China rose from 4.9% in October to 5% last month, while the urban unemployment rate for 16-24 year olds remained high at 14.3% in November.
"Continued pressure in the labor market has weighed on income growth and spending," said Bruce Pang, director of macro and strategic research at China Renaissance Securities. "More action is needed to cushion deteriorating employment conditions."
—Grace Zhu, Bingyan Wang, and Liyan Qi contributed to this article.
Write to Stella Yifan Xie at stella.xie@wsj.com
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