The latest snapshot of activity among private companies in China shows some economic improvement in November following two previous months of slower growth, according to a report released Wednesday by China Beige Book, an independent research firm.
But it’s still not enough to assuage investors’ growing view that the nation’s economy isn’t able to build enough momentum to stage a sustainable recovery. That view has loomed over Chinese stocks, with the
iShares MSCI China
exchange-traded fund down 9% so far this year.
China Beige Book’s revenue and profits indexes tracking private companies rebounded after two months of declines across sectors, with services seeing the biggest improvement as luxury goods saw a big jump in sales volume growth. Singles Day, China’s version of Black Friday, likely helped. Factory activity also picked up, helped by an increase in export orders, especially from Asia in November.
However, the beleaguered property market is still struggling, even as Beijing has eased interest rates and wooed home buyers back. Home builders logged a sharp decline in sales growth and residential real estate agents saw sales drop to the slowest pace year to date, according to China Beige Book.
While official Chinese data suggests the recovery is picking up into the year, Shehzad Qazi, managing director of China Beige Book, tells Barron’s this improvement is largely due to easier year-ago comparisons when the economy was hurting. The firm’s private data instead suggests the recovery likely peaked in the third quarter.
“The economy is still growing, but the pace is tapering off. As of now, we’re set for an even slower 2024. That’s partly why Beijing is finally stepping up fiscal measures,” Qazi says.
Other data add to the notion that China’s economy, at best, is stabilizing at low levels rather than rebounding. For example, industrial profits in October grew 2.7% from the prior year—far slower than the growth logged the two prior months.
And year to date through October, profits for industrial firms shrunk 7.8% from the prior year, according to a note from BCA Research analysts. Deflation is likely to hamper profits—and weigh on Chinese stocks, according to BCA.
More stimulus is likely forthcoming, but it’s unclear it will be as big as investors are hoping for to jump-start a recovery. The economy, however, is likely to stay supported by Beijing’s stimulus measures and easy interest-rate policies.
While much of the Western developed world is seeing interest rates settle at a higher level, China is an exception, partly due to a shrinking population, a mountain of debt, and decelerating productivity gains that put it on a path toward the type of ultralow rates that powered U.S. markets higher, according to Capital Economics economists in a note to clients.
So far, with rates falling to the lowest point since March 2021 in November, corporate borrowing and bond sales rose for a second month, according to China Beige Book’s data.
Whether these signs of improvement will fizzle out as well remains to be seen.
Write to Reshma Kapadia at reshma.kapadia@barrons.com
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