China’s central bank cut the one-year and seven-day lending rates by 10 basis points earlier this week. This was the third time this year that The People's Bank of China (PBOC) provided stimulus to the economy.
SpaceKnow’s data offers near real-time insights into the consumer, logistics, manufacturing, construction, and supply chain sectors in China. While our overall manufacturing and export-related data have held up well all year, several indices were flashing warning signs well before the recent downgrades to growth. In this piece, we focus on the consumer and construction-related sectors in our data.
Official data shows a mixed picture. While data released on Monday including factory output, investment, consumer spending and real estate were weak, the rate of slowdown remains mild in the official data.
There are two reasons, in our view, that China has seen this slowdown. Both of them have hit the Chinese consumer hard. First is Beijing’s severe approach to Covid. Second, China has a deflating property bubble, which has triggered protests and mortgage-payment strikes in several provinces and cities.
Going forward, it will be important to see if the PBOC’s stimulus and the government’s fiscal and regulatory measures will revive confidence in the economy. So far, the government has said it won’t provide massive stimulus measures; it plans to stick with the zero-tolerance approach to Covid. The market believes that the government wants to maintain stable policies around Covid until after the 20th Party Congress in late 2022.
While the Federal Reserve Bank in the world’s largest economy remains hawkish and focused on reducing inflation and 80 central banks around the world raised rates, the PBOC is stimulating the world’s second-largest economy. Will the globe continue to face higher inflation and rising interest rates, transmitted from the US, or will China’s slowdown cause commodity prices to fall and growth to slow down? SpaceKnow will track this trade-off via our global indicators.
