China’s Economy Shows Signs of Stabilizing

China’s economy is showing signs of stabilising but the improvements are decelerating. That could leave it in an L-shaped recovery—where the economy doesn’t see an upturn—that is unlikely to excite investors.

The iShares MSCI China ETF (ticker: MCHI) is down 11% so far this year. China’s recovery from three years of Covid restrictions has underwhelmed, there are concerns about the country’s longer term growth prospects, and geopolitical tensions loom.

While most analysts expect China to hit its 5% economic growth target, that may keep officials from bigger stimulus efforts, resulting in a recovery that is still anemic.

Indeed, a spate of October data from independent research firm China Beige Book show areas such as the property market still struggling to find a bottom, while there has been a slowdown in consumer spending.

Housing sales have softened in October from a month earlier and commercial real estate has had its worst showing this year. Both factory production and domestic orders also slowed.

Consumer spending is cooling, with households pulling back from big-ticket items including cars and appliances. They also are reducing their revenge spending on travel and dining out in recent months, according to China Beige Book.

Still, analysts are feeling more confident Beijing will do what is needed to create some stability, especially after it approved an additional $1 trillion renminbi government bond issuance to support infrastructure investment.

The debt will be issued not by local governments but by the sovereign, pushing headline deficit to 3.8% of GDP. It is a surprise move indicating political will to put a floor under economic activity, but also the latest signal of pain in the economy, says TS Lombard’s Rory Green in a note to clients.

Central authorities are trying to put a floor on equities, with reports Central Huijin Investment Limited—which is a part of the sovereign-wealth fund—bought exchange-traded funds. And authorities are trying to limit weakness in the yuan as part of stimulus efforts, he adds.

The next guideposts are a Politburo meeting in November and a Central Economic Work Conference in December that could offer clues to next year’s growth and fiscal outlook.

Green expects more emphasis on reallocating resources to technology sectors aligned with Beijing’s efforts to become more self-reliant, and a possible plan on how officials resolve local government debt burden.

Australia is in the midst of a ‘baby recession’ with preliminary estimates showing the number of births in 2023 fell by more than four percent to the lowest level since 2006, according to KPMG. The consultancy firm says this reflects the impact of cost-of-living pressures on the feasibility of younger Australians starting a family.

KPMG estimates that 289,100 babies were born in 2023. This compares to 300,684 babies in 2022 and 309,996 in 2021, according to the Australian Bureau of Statistics (ABS). KPMG urban economist Terry Rawnsley said weak economic growth often leads to a reduced number of births. In 2023, ABS data shows gross domestic product (GDP) fell to 1.5 percent. Despite the population growing by 2.5 percent in 2023, GDP on a per capita basis went into negative territory, down one percent over the 12 months.

“Birth rates provide insight into long-term population growth as well as the current confidence of Australian families,” said Mr Rawnsley. “We haven’t seen such a sharp drop in births in Australia since the period of economic stagflation in the 1970s, which coincided with the initial widespread adoption of the contraceptive pill.”

Mr Rawnsley said many Australian couples delayed starting a family while the pandemic played out in 2020. The number of births fell from 305,832 in 2019 to 294,369 in 2020. Then in 2021, strong employment and vast amounts of stimulus money, along with high household savings due to lockdowns, gave couples better financial means to have a baby. This led to a rebound in births.

However, the re-opening of the global economy in 2022 led to soaring inflation. By the start of 2023, the Australian consumer price index (CPI) had risen to its highest level since 1990 at 7.8 percent per annum. By that stage, the Reserve Bank had already commenced an aggressive rate-hiking strategy to fight inflation and had raised the cash rate every month between May and December 2022.

Five more rate hikes during 2023 put further pressure on couples with mortgages and put the brakes on family formation. “This combination of the pandemic and rapid economic changes explains the spike and subsequent sharp decline in birth rates we have observed over the past four years,” Mr Rawnsley said.

The impact of high costs of living on couples’ decision to have a baby is highlighted in births data for the capital cities. KPMG estimates there were 60,860 births in Sydney in 2023, down 8.6 percent from 2019. There were 56,270 births in Melbourne, down 7.3 percent. In Perth, there were 25,020 births, down 6 percent, while in Brisbane there were 30,250 births, down 4.3 percent. Canberra was the only capital city where there was no fall in the number of births in 2023 compared to 2019.

“CPI growth in Canberra has been slightly subdued compared to that in other major cities, and the economic outlook has remained strong,” Mr Rawnsley said. “This means families have not been hurting as much as those in other capital cities, and in turn, we’ve seen a stabilisation of births in the ACT.”

China’s Economy Shows Signs of Stabilizing—and a Slower Recovery

Continued stagflation and cost of living pressures are causing couples to think twice about starting a family, new data has revealed, with long term impacts expected