Economy further down the road to recovery

China’s economy showed further recovery in October, with industrial production maintaining stable growth and the services sector gaining momentum.

The industrial output of major enterprises grew by 6.9 percent year on year last month, the same pace as in September, according to data from the National Bureau of Statistics released on Monday. It rose 0.78 percent from September.

"After the economic growth turned positive for the first time in the January-September period, the October figure extended the stable recovery," said bureau spokesman Fu Linghui.

Major indicators continued to pick up, with industrial output and the services sector posting rapid growth, consumption and investment also rebounding, and factors of production tending to be active, Fu said. 

"The positive changes in such figures reflect the strong resilience and recovery capabilities of the Chinese economy and the effectiveness of governance," Fu said. "At the same time, we also see in the data that some imbalances in earlier economic performance have improved.

"From the perspective of demand, prior investment has recovered first, while consumption has followed to rally in recent months, which has a great effect on the sustainability of the economic recovery. From the production point of view, the early industrial growth is relatively fast, and this month the service sector picked up obviously, indicating that the balance of production growth is also improving."

Lu Ting, chief China economist at financial services company Nomura, said the October figures suggested recovery is on track.

"Toward the end of 2020, we expect a further, albeit gradual, recovery of the services sector and a steady improvement in retail sales and FAI growth, thanks to China’s successful containment of COVID-19 and increased availability of funding for local governments," Lu said. 

"However, headwinds remain. China is still at risk from the second wave of COVID-19 overseas, some social distancing measures within China are likely to extend into spring 2021, pent-up demand is likely to lose some steam, medical product exports could peak soon or may have already peaked, Beijing seems determined to cool property markets and the still-elevated uncertainty around the US-China relations could dent China’s exports and manufacturing investment," he added.

The company maintained its real GDP growth forecast of 5.7 percent year on year for the fourth quarter, up from 4.9 percent in the third quarter, resulting in annual GDP growth of 2.1 percent this year. "We believe Beijing will likely maintain its 'wait and see' policy approach through the remainder of this year by neither easing further nor starting to tighten."

The Australia and New Zealand Banking Group said the improvement in major economic activity data reinforced its belief that China’s GDP will expand above 5.5 percent year on year in the fourth quarter.  

Fu, meanwhile, also mentioned difficulties including the complex international situation and the global spread of the pandemic, as well as domestic structural contradictions which had accumulated over a long period of time. ”Efforts are still needed to consolidate the foundation for sustainable economic development,” he said.

"In the next stage, in accordance with the decisions and plans of the CPC Central Committee and the State Council, we should further coordinate prevention and control of the pandemic and economic and social development, promote sustained and steady economic recovery, and lay a good foundation for the beginning of the 14th five-year plan," Fu said.

Value-added industrial output maintained steady growth in October, supported by the mining sector.

The mining industry rose 3.5 percent year on year in output last month, compared with the 2.2 percent rise in the same month last year, while manufacturing jumped 7.5 percent. The electricity, heat, gas, water production and supply sectors advanced by 4 percent. Output of the equipment manufacturing sector grew by 10.8 percent.

Output growth of integrated circuits rose to 20.4 percent year on year in October, while that of new-energy autos surged 94.1 percent.

Fu highlighted robust recovery in the services sector. In October, it expanded 7.4 percent from a year earlier, 2 percentage points faster than the rise in the previous month, while for the January-October period it fell 1.6 percent year on year, narrowing from the decline of 2.6 percent in the first nine months.

The real estate industry and the transport, warehousing, and postal services sector rose 9.9 percent and 9.2 percent, respectively, 3.4 percentage points and 3.1 percentage points faster than the figures in September.

Headline retail sales growth in nominal terms recovered further to 4.3 percent year on year in October from 3.3 percent in September. In the January-October period, retail sales of social consumer goods added up to 31.19 trillion yuan (US$4.73 trillion), falling 5.9 percent year on year but narrowing the 7.2 percent drop in the first three quarters.

Sales of goods related to consumption upgrading increased rapidly in October, with cosmetics, gold or silver jewelry, and auto products up 18.3 percent, 16.7 percent and 12 percent, respectively, from a year earlier. 

From January to October, China’s online retail sales totaled 9.13 trillion yuan, up 10.9 percent year on year, 1.2 percentage points faster than in the first three quarters. Online sales of physical goods increased 16 percent, 0.7 percentage points faster than in January-September, accounting for 24.2 percent of the overall retail sales of consumer goods.

Fixed-assets investment growth, meanwhile, rose to 9.5 percent year on year in October from 7.5 percent in September, taking its year-to-date growth to 1.8 percent year on year from 0.8 percent over the same period, slightly above market expectations.

The growth of infrastructure investment rebounded strongly to 7.3 percent year on year in October from 4.8 percent in September, while the growth of manufacturing investment rose to 3.7 percent from 3 percent over the same period. 

"We expect infrastructure investment to accelerate further, as the government could ramp up its spending of the proceeds from bond issuance in previous months, while manufacturing investment may maintain its low single-digit growth in coming months, as Beijing’s policy support, especially under the 'dual circulation' strategy, may be offset somewhat by the recent rise in credit defaults," according to Nomura.

The growth of FAI by state-owned enterprises rose to 11.5 percent year on year in October from 8.6 percent in September, while growth of FAI by privately owned enterprises softened to 5.6 percent from 6.7 percent over the same period.