China's Economic Struggles Prompt Calls for Stimulus

In recent months, China's economy has faced significant challenges, particularly in its factory and service sectors. As of September, factory activity has contracted for the fifth consecutive month, while the services sector has also shown signs of slowing down. This trend raises concerns for Beijing, as the government aims to achieve its growth target for 2024 with only three months remaining in the year.

The National Bureau of Statistics (NBS) released the purchasing managers' index (PMI) for September, which slightly improved to 49.8 from 49.1 in August. However, this figure remains below the crucial 50-mark that indicates growth. Despite this, it surpassed the median forecast of 49.5 from a Reuters poll, marking the highest reading in five months. Nevertheless, the overall data indicates that both factory and consumer activities continue to be problematic for policymakers.

In response to these economic challenges, Chinese authorities have acknowledged the need for more robust stimulus measures. Last week, they introduced their most aggressive stimulus package since the COVID-19 pandemic, which resulted in a notable boost in the stock market, achieving its best weekly performance in nearly 16 years. On Monday, share markets continued to rally, reflecting some optimism among investors.

Economists are now questioning whether the recent policy announcements, which include relaxed property curbs in major cities, will be sufficient to stimulate a recovery. Zhiwei Zhang, chief economist at Pinpoint Asset Management, expressed skepticism, stating, "From a macro perspective, these policies are not that important, as these cities account for a small share of the national property market. The key policy to address the macro challenge remains to be fiscal." This highlights the ongoing debate about the effectiveness of the measures being implemented.

In addition to the stimulus package, the central bank and top financial regulators have introduced further measures to support the housing market. These include directives for banks to lower mortgage rates for existing home loans before October 31. Analysts believe that this stimulus, along with a reported new bond package worth 2 trillion yuan (approximately $285.20 billion), should help align growth with Beijing's target of around 5%. However, the country still faces the pressing issues of weak demand and a challenging global trade environment.

Consumer weakness has become increasingly evident, as reflected in the official services PMI, which fell to 49.9 in September, marking the first contraction since December of the previous year. The Caixin services PMI also indicated a slowdown in sector activity. Zhao Qinghe, a statistician at the NBS, attributed the decline in the official services PMI to the conclusion of the summer holiday travel peak and extreme weather conditions, such as typhoons affecting certain regions.

While the Chinese government is taking steps to stimulate the economy, the effectiveness of these measures remains uncertain. The combination of ongoing challenges in the factory and service sectors, coupled with weak consumer demand, suggests that more comprehensive strategies may be necessary to ensure sustainable growth. As the situation develops, it will be crucial for policymakers to remain vigilant and responsive to the evolving economic landscape.