In recent weeks, there have been significant indicators pointing towards an economic recovery in October, with various positive factors contributing to a more optimistic outlook. Notably, consumer spending and export growth have exceeded expectations, while the decline in real estate sales has slowed, signaling a boost in market confidence. Analysts and economists are keenly watching the upcoming political bureau meeting and the Central Economic Work Conference at the end of the year, which could set the stage for further policy initiatives aimed at sustaining this economic rally.

The National Bureau of Statistics recently released data highlighting these improvements. In October, the total retail sales of social consumer goods climbed 4.8% year-on-year, a notable increase of 1.6 percentage points from the previous month. The value-added of large-scale industrial enterprises experienced a 5.3% actual year-on-year growth, despite a minor drop of 0.1 percentage points from September. From January to October, nationwide fixed asset investment, excluding rural households, saw a year-on-year increase of 3.4%, holding steady with the growth rate from January to September. The urban survey unemployment rate was recorded at 5.0%, down 0.1 percentage points from September. Additionally, the consumer price index (CPI) rose by 0.3% year-on-year, reflecting a slight decrease of 0.1 percentage points from the previous month. Customs data also indicated that exports, measured in US dollars, surged by 12.7% year-on-year in October, a significant acceleration of 10.3 percentage points compared to September.

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Overall, the economic recovery in October can be attributed to a combination of pre-existing and new policies working in concert to yield positive results. While consumer spending and exports have rebounded unexpectedly, industrial output and investment growth have remained stable, with a moderation in the decline of real estate sales. However, it is essential to recognize the complexities of the external environment, which is becoming increasingly turbulent, alongside a notable weakness in domestic demand and persistently low price levels. For sustainable economic recovery, further policy strengthening will likely be required, particularly in the realm of fiscal measures.

One of the standout highlights of October's economic performance was the significant rebound in consumer spending. The total retail sales in October reached an impressive 45,396 billion yuan, reflecting a 4.8% year-on-year increase and a marked acceleration of 1.6 percentage points from the prior month. This upswing marks the second consecutive month of notable recovery in consumer spending. Several factors contributed to this unexpected resurgence in consumption.

Firstly, the “old-for-new consumption” policy targeting consumer goods appears to be yielding positive results. In October, retail sales for categories such as household appliances, audio-visual materials, automobiles, and furniture showed a significant increase in year-on-year growth rates compared to previous months. This category alone contributed 1.2 percentage points to the overall retail sales growth. More specifically, household appliances and audio-visual materials saw a remarkable 39.2% increase, accelerating by 18.7 percentage points from the previous month; cultural office supplies and furniture sales grew by 18.0% and 7.4%, respectively, with surges of 8 and 7 percentage points from the previous month; and automotive retail sales jumped 3.7%, rising by 3.3 percentage points compared to September.

Historically, policies aimed at stimulating the consumption of durable goods, such as household appliances and automobiles, have proven effective in invigorating market activity. For instance, between 2008 and 2013, initiatives such as the "Home Appliances Going to the Countryside" program and “Trade-In for New” schemes significantly bolstered appliance sales. Similarly, tax reduction measures applied to car purchases in 2009 and 2015 had a pronounced effect on the automotive sector.

Moreover, an official announcement during a November 8th press conference by the Standing Committee of the National People's Congress outlined plans to "expand the types and scale of the old-for-new consumption policy" by 2025. This indicates a continuing emphasis on stimulating consumer spending and suggests broader benefits for the retail sector in the coming years, enhancing the recovery's momentum and sustainability.

Secondly, the stock market's notable rebound and the stabilization of the real estate market has positively affected household wealth, subsequently boosting consumer confidence. Economic conditions influence consumption patterns, and household wealth significantly factors into spending decisions. Following the Politburo meeting on September 26, which stressed the importance of strengthening the capital market and stabilizing the real estate market, policy adjustments contributed to a stock market recovery, with the Shanghai Composite Index bouncing back from approximately 2,700 points to around 3,400 points. As of mid-November, the index has gained approximately 12% for the year, with real estate sales also showing improvement. The year-on-year drop in October's commercial housing sales area narrowed to -1%, reflecting a 15.3 percentage point improvement from the previous month.

Finally, the timing of the "Double Eleven" e-commerce promotions and the National Day holiday were instrumental in driving related consumption. The duration of the 2024 “Double Eleven” shopping festival was longer than in previous years, stimulating online purchases, as evidenced by a year-on-year growth of 8.3% in online retail sales from January to October. Moreover, consumer travel demand during the National Day holiday provided a significant boost to the cultural and tourism sectors, with data indicating a 5.9% year-on-year increase in domestic travel counts and a 6.3% rise in total travel expenditure during the same timeframe. Furthermore, performances and ticket sales for 44,300 commercial shows rose by 14.6% and 25.9%, respectively.

In broader economic terms, analysts at Shenwan Hongyuan Securities have noted that since September, there has been a noticeable relaxation of policies targeting real estate demand, coupled with accelerated fiscal expenditures. The combined effect of these initiatives, alongside consumer goods upgrades and the old-for-new policies becoming more pronounced, supported improvements in infrastructure investment, manufacturing investment, and discretionary spending. However, some sectors that are indirectly influenced by policy measures continue to lag, with service industry investments showing successive declines and catering consumption remaining weak. For long-term sustainable recovery, there will be an ongoing need to strengthen fiscal policies going forward.

In September, concerns surrounding weakened export growth had emerged, but October's robust performance assuaged these worries, demonstrating the resilience of China’s diversified export market and enhancing the competitiveness of its export enterprises in light of external risks. Detailed figures reveal that the export growth rates to major trading partners have significantly rebounded. Exports to ASEAN increased by 15.8%, rising by 10.3 percentage points compared to the previous month; exports to the European Union saw a growth rate of 12.7%, also improving by 11.4 percentage points; and exports to the United States increased by 8.1%, marking a 5.9 percentage point boost from September.

Chinese Galaxy Securities suggested that the prior effects of typhoons on shipment schedules, improvements in the economic conditions of certain nations, reductions in export product prices enhancing competitiveness, as well as a low base of comparison from the previous year, all contributed to the unexpected surge in October’s export growth.

Looking at the long-term, China's export sector remains well-positioned to handle external uncertainties. Despite previous rounds of tariffs imposed on Chinese goods, the country’s manufacturing capabilities have not diminished; as of 2022, China's manufacturing value-added share of global production remained approximately 30%, an increase from 26% in 2017. China's exports have diversified, gaining increased market share in emerging economies. In the first three quarters of 2024, trade with countries participating in the Belt and Road Initiative reached 15.21 trillion yuan, marking a 6.3% growth and raising the share of overall trade to 47.1%.

Nevertheless, it is inevitable that short-term fluctuations in Chinese exports may occur. It will be essential for policymakers to prepare and implement measures to strengthen domestic demand and counteract the short-term impacts of external uncertainties.