Pledges on government spending and monetary support come as data points to slowing growth
4 min
Chinese leaders vowed to increase government spending and monetary support for the economy at an annual gathering, signalling they plan to stick with a measured approach to stimulus despite calls for bolder action.
The Central Economic Work Conference, which ended Tuesday, capped a bruising year for the country’s economy, which has struggled with a drawn-out housing crunch and weak consumption.
The trouble shows no sign of abating. After a pickup in the third quarter, data in recent weeks has pointed to slowing growth again as exports struggle, activity in the services sector slows and deflation deepens.
Still, Chinese leaders offered few specifics Tuesday on how they intend to reignite consumer and business confidence and reinvigorate growth.
Chinese leader Xi Jinping presided over the two-day meeting, where leaders urged officials to increase fiscal stimulus and help expand domestic demand, according to Chinese state media. They also acknowledged economic challenges, including “excess capacity in certain industries and weak sentiment in the society,” according to a readout of the meeting.
Chinese leaders also called for strengthening the resilience of industrial supply chains and accelerating the development of artificial intelligence, as well as other strategic industries such as aerospace and biotechnology.
The closed-door meeting, which is typically held in December each year to map out plans for economic policy-making, sets out the leadership’s growth ambitions for the following year, though the detailed targets won’t be released until March, during the National People’s Congress.
Though the overall tone of the conference was pro-growth, “it is still not a call for massive stimulus,” economists at Société Générale said in a note to clients after the readout was published. Instead, officials are emphasising the need to stabilise the economy and stem risks to growth, they said.
Many economists expect Beijing to anchor its growth target at around 5% in 2024, taking their cue from a meeting last week of the Communist Party’s Politburo, its body of top leaders. Policy makers emphasised the importance of economic progress, saying the country needed to “pursue stability through growth.”
This year’s target was also set at around 5%. Despite its difficulties, the economy looks set to hit that goal this year, but economists say maintaining that pace will be tough without bigger measures to stimulate the economy.
Beijing has taken some measures this year including interest rate cuts and channeling cheaper loans to firms to arrest the downturn but has so far failed to reverse a broad-based loss of confidence.
China’s difficult year contrasts with surprising resilience in the U.S., where buoyant consumer and government spending have kept the economy motoring despite aggressive increases in interest rates by the Federal Reserve. The latest data on jobs and inflation has stoked optimism that the U.S. will avoid recession and instead enjoy a “soft landing,” in which price growth slows to target without a steep rise in unemployment. That marks a reversal in expectations from earlier in the year when China was expected to easily outpace a cooling U.S. economy.
And there are fresh signs of trouble for China.
Business surveys showed factory activity slid deeper into contraction in November as domestic and foreign orders dried up, while activity in the services sector shrank for the first time this year as consumers cut back spending.
Exports rose just 0.5% on the year last month after shrinking for six months, highlighting the drag from slowing growth in the U.S. and Europe.
Weak domestic spending and bloated industrial capacity caused consumer prices in China to fall in November for the second straight month, deepening a bout of deflation that economists say could prove hard to shake if the economy doesn’t pick up soon.
China’s slow-motion property crunch shows few signs of abating. Some developers have defaulted on their debts and construction has stalled on millions of homes. Home prices fell in October and new investment in the sector is shrinking.
A central question for investors and economists is whether Beijing will experiment with novel stimulus approaches to shore up battered confidence among households and businesses.
At the meeting, Chinese leaders vowed to expand consumption and raise income for both urban and rural residents but offered little sign that they may pivot to giving cash handouts to households, despite repeated calls from policy advisers and economists to do so.
Instead, the government is seen as more likely to step up efforts to resolve the crisis in the property market, which remains a major drag on overall growth.
Chinese leaders called for equal treatment for developers to meet their financing needs—a likely reference to the perception that banks favour state-backed developers over private ones. They also urged accelerating the construction of government-subsidised affordable housing and urban village renovation projects.
Still, the meeting didn’t spell out a plan to help cash-strapped developers finish tens of millions of uncompleted apartments, a crucial step that economists believe will help restore household’s confidence in the government.
While officials aren’t expected to disclose a growth target until a political gathering next spring, economists and investors are already debating how aggressive Beijing will be with its 2024 goal.
Economists from J.P. Morgan predicted that policy makers will likely maintain a goal of around 5%, to signal a renewed focus on the economy. Robin Xing, chief China economist at Morgan Stanley, said he expects Beijing to set a target of 4.5% to 5% and pursue a stronger fiscal stimulus.
Others believe Beijing will stick to a more conservative target because of the headwinds facing the economy. Ting Lu, chief China economist at Nomura, said he expects China to aim for around 4.5%.
“I still think the Chinese government is quite rational,” said Lu, who cautioned that the economy hasn’t bottomed out and the actual growth rate could slip to 4% in 2024 from Nomura’s 5.2% forecast for 2023.
Copyright 2020, Dow Jones & Company, Inc. All Rights Reserved Worldwide. LEARN MORE
The Australian leather house has opened an immersive four-day pop-up in Manhattan, unveiling its Bloom Collection and redefining what a product launch can look like.
Following the successful launch of its Palais Collection, MAISON de SABRÉ has unveiled a new modular handbag system offering more than 720 styling combinations.
Investors are bracing for a bumpier fall stock market due to shifting odds of a Federal Reserve interest-rate increase and other macro challenges.
3 min
The stock market had a decent summer. Investors are bracing for a bumpier fall.
In the past couple of months, equity investors cheered soaring profits at big companies, shrugged off jitters in the bond market and nudged megacap tech shares back near records.
Now, as the post-Labor Day stretch begins, a number of new challenges lie ahead: ever-shifting odds of an interest-rate increase from the Federal Reserve. Sky-high expectations after a stunning earnings season. The persistent threat of higher consumer prices as fighting in the Middle East drags on.
“You’re moving from this earnings-driven market to this macro-driven market with the Fed, inflation and interest rates in focus,” said Keith Lerner, chief investment adviser for Truist Advisory Services. “It tends to be a choppier period.”
Historically, every major U.S. stock index experiences its worst average return in September. The Dow Jones Industrial Average has slid an average 1.1% in the ninth month of the year, in data that dates back to the 19th century. The S&P 500 has seen the same average decline—and for every September dating back to 1928, the benchmark ends the month lower more than half of the time.
Analysts caution against reading too much into those seasonal patterns. But in recent weeks, new reasons for investor caution have emerged. One of the largest: the looming threat of an interest-rate increase from the Fed, which announces its next policy decision on Sept. 16.
Chairman Kevin Warsh’s decision to ditch forward guidance and take more of his cues from markets has muddied the waters for investors when it comes to monetary policy. That has left traders scouring Fed governor speeches and economic-data reports for clues on the central bank’s next move.
“There’s going to be a lot of eyes on those numbers,” said John Luke Tyner, head of fixed income and portfolio manager at Aptus Capital Advisors.
The past couple of weeks offered just one example of how frequently those expectations can change. After Warsh struck a hawkish tone during remarks on Aug. 28, the odds of a hike at the Fed’s next meeting jumped from 35% before the speech to 58%, according to CME FedWatch data.
On Thursday, Fed governor Christopher Waller made a case for leaving rates where they are. Interest-rate futures showed coin-flip odds between a hike and a hold. Then Friday’s robust jobs report amped up rate-hike bets once more, back to a roughly 60% chance of higher rates after the meeting.
“Rates have really been driving the car for equities the last few weeks,” said Ross Mayfield, an investment strategist at Baird.
That uncertainty comes as an unruly bond market could put pressure on stocks. Treasury yields have marched higher for much of the summer, driven by concerns about rising oil prices, growing U.S. budget deficits and a deluge of tech-company bonds now competing for investors’ cash. Last week, the rout went global, pushing yields to multiyear highs in Japan, Germany and the U.K.
Higher bond yields can drag on stock prices and lift borrowing costs for companies and consumers across the economy.
Rising prices remain the top concern for bond traders, and continued fighting between the U.S. and Iran has done little to ease those worries. The national average price of diesel climbed to a record of $5.850 on Friday, according to AAA. That is up from $3.712 a year ago.
Investors will get more insight on the path of prices this week, with the much-awaited consumer-price index report due Friday and a reading on producer prices Thursday.
With another blockbuster earnings season in the books, some analysts have also warned that any boost from the third-quarter reports due in the coming months could be minimal. Back-to-back quarters of standout profits have raised expectations and made it especially difficult to impress traders. Custom-chip company Broadcom, for example, said Wednesday that it more than tripled its earnings and nearly doubled its revenue. Shares slipped 2.7% the next session.
Many analysts note there are plenty of reasons not to panic. The economy is in impressive shape, thanks to a healthy labor market and the rippling effects of the artificial-intelligence investment boom. Profits are booming at America’s biggest companies. The Cboe Volatility Index has dropped to its lowest levels of 2026. Credit spreads are tight, a sign bond investors aren’t concerned about economic conditions that could hurt companies.
But the mood has shifted from the euphoria that felt tangible when the Nasdaq was notching back-to-back records early this summer. The question, Mayfield said, is whether the fundamentals that have bolstered the bull market so far can stretch the rally into 2027.
“There are more anxieties or uncertainties about the backdrop,” he said. “It does feel like a transitional moment.”
