Economic activity disappoints in October

Latest reading: China’s industrial production increased 4.9% year-on-year in October, slowing from the pace seen a month earlier and falling short of market expectations. The moderation reflected softer momentum in key sectors and was partly influenced by holiday-related disruptions during the Golden Week festival. Retail sales grew 2.9% compared with a year earlier, a slight easing from the previous month but still marginally stronger than anticipated, supported by the government’s purchase incentive scheme and holiday spending. Fixed-asset investment declined 1.7% in the January–October period, a notably worse reading than markets were expecting. The drop marked a second straight month of contraction, driven largely by a pullback in infrastructure activity, more subdued manufacturing investment and continued weakness in the property sector. Regarding the latter, indicators such as home prices, housing sales and floor space under construction remained in contraction, confirming that the property sector has yet to turn a corner despite repeated government support measures.

Panelist insight: Digging deeper into the data, Nomura analysts said: “The later-than-usual mid-autumn festival and the extended Golden Week holiday created some distortions to production and consumption activity in September-October, and we still see intensifying demand headwinds. Retail sales of both home appliances and autos contracted markedly, pointing to pronounced payback effects from the trade-in program. The property sector decline has continued to deepen, weighing on both consumption and investment. The sustained and sharper contraction in FAI suggests the impact from the latest RMB500bn policy bank financing tools remains elusive.”

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