Stay up to date with free updates
Simply sign in Chinese economy myFT Digest — delivered directly to your inbox.
China’s factory activity strengthened for the first time in six months in October, an encouraging sign for policymakers as they prepare a key fiscal package to support the major economy second in the world.
The figures represent the final data released ahead of next week’s meeting of the National Assembly’s standing committee. ChinaThe National People’s Congress, the National People’s Congress, is expected to confirm the size of the fiscal stimulus package to try to boost economic growth.
This month’s official purchasing managers’ index came in at 50.1 on Thursday, higher than September’s reading of 49.8 and stronger than the average forecast of 49.9 by analysts polled by Bloomberg. An index above 50 marks an expansion compared to the previous month.
The non-manufacturing PMI was 50.2 in October, slightly lower than analysts’ forecast of 50.3 but also higher than September’s 50, as underlying domestic consumption remained weak. .
Analysts estimate China Need to spend up to 10 trillion Rmb (1.4 trillion USD) within three years to restore the confidence of domestic consumers, whose wealth has been hit hard by the deep real estate sector downturn and job and money cuts. wage.
But many believe the government plans to direct the bulk of next week’s stimulus package at adjusting local government balance sheets through debt swaps, as well as providing capital to buy land and apartments unsold to create a foundation for the declining real estate market.
Authorities announced an initial monetary stimulus effort in late September aimed at the stock market and interest rates, and sent China’s benchmark CSI 300 stock index soaring as investors sold Retailers flocked back to the stock market.
Morgan Stanley analysts said before Thursday’s data release that the activity could be supported by “rapid financing deployment for infrastructure projects”, as the government increases Accelerate spending in the final months of the year in an effort to achieve growth goals.
Chinese economy increased by 4.6% per year in the third quarter, the official full-year target of 5% was not achieved.
Since then, the government has raised expectations for more action, after a highly anticipated briefing by state planners failed to offer stronger financial support, leaving the Investors were disappointed and stocks plummeted.
Ministry of Finance later announced this month that the planned fiscal stimulus would focus on local governments, many of which depend on revenue from real estate sales and have been devastated by the three-year recession in the U.S. this field.
Repairing local government finances will allow them to repay outstanding debts to local suppliers and pay staff, as well as continue to invest.
However, economists say doing so by swapping existing local government debt for new debt would not have a stimulative effect because it would not require more spending.
Commenting on a Reuters report this week that Rmb6 trillion of the planned stimulus package would take the form of local government debt swaps, Nomura economist Ting Lu said this “will not represents any incremental borrowing and cannot be considered a stimulus.”
What is needed instead, economists say, is direct support for households, in the form of improved social welfare and health care programs and other services to help Families are confident in spending again.
Chi Lo, senior market strategist at BNP Paribas Asset Management, noted that Beijing has “many policy goals beyond maintaining economic growth,” including “implementing structural reforms and reducing risks.” financial risk”. The government “has no target for fiscal spending,” he added.
