China's October data on Monday will show whether consumption stayed soft and investment kept shrinking
China publishes a dense batch of October economic data on Monday that will test the strength of the world's second-largest economy as the year-end approaches. The statistics bureau holds a press conference on national economic performance and releases industrial production for firms above the designated size, energy production, fixed-asset investment, housing prices and home sales, and total retail sales of consumer goods, all on the same day.
Consumption: resilient but uneven
A forecast co-produced with Hong Kong China specialist Yiyi Capital expects October retail sales growth of about 0.8 percent year on year, easing from September's 1.1 percent, capturing resilient goods consumption alongside weak purchases of big-ticket items. September's rebound was driven by non-automobile consumption, with retail sales excluding cars up 3.9 percent; car sales remain sluggish, the recovery in home-appliance sales is limited, and catering and offline spending were weighed down by holiday calendar shifts. Early promotional discounts for the November 11 shopping festival supported online sales, though demand pulled forward from later months limits its overall boost.
The weakness in consumption lies in institutional rather than household demand, according to spending groups identified by the statistics bureau: the report estimates institutional spenders account for roughly half of merchandise consumption, and those purchases have been slowed by corporate budget cuts. Household merchandise consumption grew by a steady 3.6 percent in the first three quarters, and third-quarter company results show consumer staples and value-for-money discretionary categories, from soft drinks and snacks to personal care and branded cosmetics, together with overseas-expansion sub-sectors, posting revenue growth faster than both overall retail sales and profit growth.
Investment: soft but stabilising?
The same research report forecasts that investment activity is expected to remain soft but stable: fixed-asset investment excluding rural households is forecast to have declined 6.6 percent year on year in January-October. Manufacturing investment is projected to have fallen by roughly 1.3 percent in January-September, infrastructure investment by around 3.9 percent and real-estate development investment by approximately 21 percent. But the full deployment of 800 billion yuan, about 120 billion dollars, in capital through policy-backed financial instruments as of October 28 should help stabilise activity, and concentrated implementation in the fourth quarter could rapidly reverse the downward trend if most projects get under way.
Markets and valuations
Chinese equities were mixed over the past week: as of Thursday, the MSCI China Index had declined 2.92 percent while the Shanghai Composite rose 0.18 percent, the Shenzhen Component added 0.2 percent and the growth-oriented ChiNext index climbed 1.79 percent, with small-cap shares outperforming and growth stocks beating value. Looking ahead, the report argues that valuations sit at historically low levels, dividend certainty is at a historical high and the earnings of leading companies continue to recover, arguing that low-valuation value investing still presents substantial opportunities in a market where structural overvaluation and undervaluation coexist.