China’s policy support is a ‘stop-gap’ measure — not stimulus, SocGen economist says

China’s current policy support is aimed toward fixing its system and should not be seen as financial stimulus, in line with Societe Generale’s Asia chief economist and head of analysis.

“Actually, to be frank, I don’t think anything [that] has happened should be considered stimulus, they are stop-gap measures. Even the extra 1 trillion [central government debt] issuance, if you compare that amount to land sales revenue that’s lost because of the housing correction, it’s not even enough,” Wei Yao advised CNBC Street Signs Asia on Tuesday.

In late October, Chinese authorities introduced a uncommon mid-year revision, which included the issuance of 1 trillion yuan in ($137 billion) in authorities debt — one of many greatest adjustments to the nationwide price range in years. The quantity was for the reconstruction of areas hit onerous by natural disasters — akin to this summer season’s historic floods — and for disaster prevention.

China’s post-Covid restoration stalled a few months after the nation emerged from its stringent zero-Covid measures towards the top of final yr. Some of China’s largest actual property builders are going through critical debt points as a part of Beijing’s broader deleveraging of the once-bloated real estate sector — which accounts immediately and not directly for about as much as a third of China’s financial actions.

“So we are just moving from a phase where the government wasn’t so much worried about the economy [to] now they start to worry and start to put a stop to the decline,” Yao stated.

“It’s an improvement, but at the same time, if you listen to them, they are not thinking about … stimulus either. It’s about fixing the system, try to resolve the debt problem — which in some ways, is the right one.”

Investors and market watchers have been seeking to the China Communist Party’s Third Plenum, a assembly that usually focuses on discussing the nation’s financial points and held in both October or November, a yr after a renewal of management.

With the Politburo not setting a date for the Third Plenum at its assembly final week, there are some expectations it should now solely happen in 2024.

Expansion in China’s companies sector climbed to its strongest since August, a personal survey on Tuesday confirmed. The Caixin China companies buying managers’ index got here in at 51.5 in November, in line with a release dated Dec. 5, rising from 50.four in October and 50.2 in September.

A studying above 50 signifies growth in exercise, whereas a studying beneath that degree factors to a contraction.

However, the personal survey diverged from China’s official PMI. Official non-manufacturing PMI companies sub-index for November released last week got here in at 49.3, exhibiting a contraction for the primary time since December 2022.

There was a related divergence between the personal and official manufacturing PMIs.

The Caixin studying released Friday pointed to an growth in manufacturing in November at 50.7 from 49.5 in October. On the opposite hand, the official manufacturing buying managers’ index unexpectedly edged lower to 49.4 in November from 49.5 in October, in line with data from the National Bureau of Statistics. 

“We think the divergence between the NBS and Caixin manufacturing PMIs mainly reflects a persistent drag from the property market downturn on industrial demand, as well as moderating activity levels in the traditional manufacturing sectors,” Barclays’ China economists led by Jian Chang, wrote in a be aware dated Dec. 1.

The moderating manufacturing PMI and contracting companies PMI, together with different November information level to the fragility of the Chinese financial system and a quicker deceleration of progress momentum final month, they added.

The official PMI consists of extra corporations engaged in heavy industries in contrast with the Caixin PMI, which covers extra consumer-focused corporations, Barclays economists stated.

“The economy is still on the cusp of stabilization, but it’s a pretty treacherous path because the system is working against some very sizeable immense downward pressure still coming first and foremost [from] the housing sector, and then of course, there’s all these debt problems that they still need to resolve,” Yao advised CNBC Tuesday.

“I think the story’s not so much changed in the sense that it is a recovery, but it’s a weak one,” she added.

— CNBC’s Evelyn Cheng contributed to this report.