Please note that we are not authorised to provide any investment advice. The content on this page is for information purposes only.
In September, China unveiled a flurry of stimulus measures to arrest the slowdown in its economy. However, incoming data has shown that the stimulus, which is a mix of fiscal and monetary policy measures, has failed to lead to much revival in China’s economy.
Data released earlier today showed that China’s retail sales rose by 3% YoY in November which is significantly below the 4.6% that economists were expecting.
In its statement, China’s National Bureau of Statistics said, “Signs of improvement in the economy have accumulated in November thanks to the stimulus policies.” The release however added that “domestic demand has remained insufficient and businesses are confronted with operating difficulties.”
China’s Economic Slowdown
Notably, during the fiscal Q2 2025 earnings call last month, Alibaba said that the stimulus measures would have a positive impact on China’s economy in the long term. The Chinese ecommerce giant however sounded a bit circumspect on the immediate impact with CEO Eddie Wu saying, “these stimulus measures are really just getting started and, over time, will have a positive impact on driving consumption overall.”
The slowdown in China’s retail sales is negatively impacting Alibaba which is the largest ecommerce company in the country. Apart from the slowdown, Alibaba is also battling higher competition from the likes of JD.com and Pinduoduo.
China’s Real Estate Sector has Sagged
China’s economy is facing a structural slowdown amid an aging population and sagging domestic consumption. The country’s investment-led growth model long lived its course and areas like real estate which were once the key pillars of the Chinese economy are now the weak links. The real estate slowdown is also putting pressure on the balance sheet of Chinese banks.
In the first 11 months of 2024, real estate investment in China tumbled by 10.4% which is 10 basis points higher than the period between January and October. While China has taken several measures to support its ailing real estate sector, including easing home-buying restrictions, these measures are yet to show actual results.
Chinese Stimulus Measures Have Failed to Impress
Last month, China unveiled a massive $1.4 trillion stimulus which failed to impress markets since it was mostly a swap for local government debt. According to My Bui, an economist at investment management firm AMP, “The stimulus effect has been short-lived.”
He added that while the “recent fragile but upward momentum in Chinese economic data will translate into a real GDP growth rate of 5% this year,” consumption might remain weak due to falling home prices. Notably, the bulk of the wealth of Chinese citizens is held in real estate and falling home prices are taking a toll on consumer sentiments, and by extension consumption.
China’s Imports Fell in November
Last month China’s imports tumbled 3.9% YoY and fell well short of the 0.3% growth that analysts were expecting. The fall in imports is a reflection of a deepening slowdown in the world’s second-largest economy. China’s exports also rose less than expected in November. There are fears that Donald Trump’s return to the White House could put further pressure on Chinese exports as the president-elect has vowed more tariffs on imports from China.
Commenting on China’s November trade data, Xu Tianchen, senior economist at the Economist Intelligence Unit said, “Early signs of trade frontloading in anticipation of Trump’s tariffs next year have started to emerge, but the full impact will not be felt until the coming months, especially December and January.”
China meanwhile has been reaching out to Trump and in a letter to the US-China Business Council President Xi Jinping said the two countries should “choose dialogue over confrontation, win-win cooperation over a zero-sum game.”
China Sees More Leeway to Increase Fiscal Deficit
China’s Minister of Finance Lan Fo’an has sought to allay fears that China’s high debt leaves little scope for fiscal stimulus and emphasized that “there is still relatively big room for China to issue debt and increase the fiscal deficit.”
However, while China has been announcing a flurry of measures, including fiscal spending, analysts believe that the country would need to be mindful of its already high debt pile. Speaking at the FutureChina Global Forum in Singapore, Bridgewater Associates founder Ray Dalio said, China would need “beautiful deleveraging” along with the stimulus measures.
“I think the changes that are taking place are terrific changes, but you still have to do the debt restructuring,” said Dalio.
He warned against throwing too much credit and money into the economy and said, “You need to do it correctly, and that’s as part of a restructuring. That becomes the challenging part of it. I think that will be the test.”
Chinese Stocks Have Come Off Their 2024 Highs
Meanwhile, Chinese stocks have come off their 2024 highs and some analysts are cautious heading into 2025.
“For Chinese equities to meaningfully outperform, we need to see the policy announcements result in an actual easing of deflationary pressures and a rebound in corporate earnings, both of which will take time,” said, Aaron Costello, head of Asia at Cambridge Associates.
Costello added, “It is clear that China is setting the stage to increase stimulus in 2025, potentially to counteract any adverse trade policies from the incoming Trump administration.”
According to Paul Christopher, head of global investment strategy at Wells Fargo Investment Institute, “As much as Beijing wants to stimulate more employment, home buying and consumer spending, [policymakers] also want to avoid encouraging high-debt sectors to take on more debt.” He added, “This dilemma is likely to mean more limited support than in the past.”
Christopher’s comments perhaps best sum up the classical dilemma that China is facing. On the one hand, China’s investment and export-led growth model has lived its course while the pivot to a consumption-driven economy has been negatively impacted by the slowdown as consumers have been reluctant to spend. Unlike in the past when China opened up its coffers after the 2008 Global Financial Crisis, the fiscal legroom this time around is quite limited.
