1. The economy continued to slow down in the third quarter, with a full effort to boost the economy.
The economy continued to slow down in the third quarter. The actual GDP for the third quarter grew by 4.6% year-on-year, and the nominal GDP by 4.0%, both down by 0.1 percentage points from the second quarter. The actual year-on-year growth rates for the secondary and tertiary industries were 4.6% and 4.8%, respectively, which were 1.0 and 0.6 percentage points lower than the second quarter.
Among the three engines of growth, domestic demand represented by consumption and investment is close to zero growth. The real estate sector saw a significant negative growth, which dragged down consumption, local finances, and infrastructure investment. The growth rate of residents' income slowed down, and consumer confidence was insufficient.
External demand faces significant challenges, with a sharp decline in exports in September.
Deflationary signs intensified. The Producer Price Index (PPI) has been in negative growth for more than 20 consecutive months, which is rare in history. The Consumer Price Index (CPI) in September was 0.4% year-on-year, and in August it was 0.6%; the PPI in September was -2.8% year-on-year, and in August it was -1.8%. The growth rate of M1 has set a historical low for six consecutive months, and the gap between M2 and M1 has further widened. The year-on-year growth rate of M1 was -7.4%, setting a new historical low, down by 0.1 percentage points from the previous month, indicating a clear liquidity trap.
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Since September 24th, the highest-level meetings have introduced a package of incremental policies, marking the beginning of large-scale economic stimulation and market confidence enhancement: interest rate cuts and reserve requirement ratio reductions, promoting the stabilization of the real estate market, relaxing purchase restrictions, innovating financial instruments to provide funds for capital markets, issuing more government bonds and special bonds, regulating confiscated income, and protecting the private economy, among others. This sends a positive signal of a full effort to boost the economy.
The current internal and external environment is more complex and severe than during the 4 trillion yuan period in 2009. Externally, the United States is decoupling and breaking supply chains, and internally, the private economy and local confidence are sluggish, which are significantly different from the micro-foundations of 2009. Therefore, not only do we need macro policies represented by fiscal and monetary policies to continue to exert force, but we also need to provide new positive incentives and stable expectations for entrepreneurs and local officials to rest and recuperate. This also determines that the recovery in the economy and investment will not be as immediate as in 2009, and all sectors need patience and confidence, with policies needing to continue to exert force.
The tighter externally, the looser internally. The more enterprises face the challenges of deglobalization, the more we need to actively improve the business environment internally, help enterprises through difficult times, and govern phenomena such as confiscated income and distant-water fishing that damage the business environment, to avoid adding insult to injury for businesses.
The key now is to fully focus on the economy, prioritize development, as development is the fundamental solution to all problems. Macro relaxation, micro activation. Macro-wise, fiscal and monetary policies continue to exert force, with interest rate cuts, tax reductions, and fiscal expansion to stimulate the economy. Micro-wise, let the water flow to nourish the fish, rest and recuperate, reduce taxes and fees, protect property rights, market mechanisms, judicial fairness, the spirit of contract, the principle of "nothing is forbidden unless explicitly stated," strengthen the rule of law, and improve the business environment.7) Core CPI records negative growth for two consecutive months, while the decline in PPI widens again. The core CPI decreased by 0.1% month-on-month for two consecutive months; year-on-year it increased by 0.1%, down by 0.2 percentage points from the previous month. The CPI year-on-year was 0.4%, with a month-on-month growth of 0%. The peak travel season for summer holidays has ended, leading to a decrease in service prices. Vegetables have risen again on the high base of the previous month, with the price of fresh vegetables increasing by 4.3% month-on-month, a decrease of 13.8 percentage points from the previous month. The PPI year-on-year was -2.8%, marking 24 consecutive months of negative growth, and this month the decline in PPI year-on-year was exacerbated by the decrease in commodity prices and import-related factors.
3 Industrial production accelerates, with high-tech industries growing rapidly
The impact of extreme weather weakens, and industrial production accelerates, with high-tech industries being a significant driving force. In September, the value added of the industrial sector above the designated size grew by 5.4% year-on-year, an increase of 0.9 percentage points from the previous month; month-on-month it increased by 0.6%, an increase of 0.3 percentage points from the previous month. The sales-to-output ratio was 96.0%, a further decrease of 0.6 percentage points from the previous month. In the third quarter, the capacity utilization rate increased to 75.1%, an increase of 0.2 percentage points from the second quarter.
Among the three major categories, the production of electricity, gas, and water supply was faster than mining and manufacturing. The value added of mining, manufacturing, and electricity, gas, and water supply increased year-on-year by 3.7%, 5.2%, and 10.1%, respectively, with changes from the previous month of 0, 0.9, and 3.3 percentage points, respectively.
1) High-tech manufacturing and equipment manufacturing grow rapidly. In September, the industrial value added of high-tech industries increased by 10.1% year-on-year, an increase of 1.5 percentage points from the previous month. Among them,
Manufacturing of computers, communication, and other electronic equipment, as well as manufacturing of railway, ship, aerospace, and other transportation equipment, increased year-on-year by 10.6% and 13.7%, respectively, with changes from the previous month of -0.7 and 1.7 percentage points, respectively.
General equipment manufacturing, specialized equipment manufacturing, and manufacturing of electrical machinery and equipment increased year-on-year by 4.6%, 4.0%, and 6.1%, respectively, with increases from the previous month of 2.4%, 1.1%, and 3.5% percentage points, respectively.
2) Affected by the real estate market, the value added of the non-metallic mineral products industry has been in negative growth for sixteen consecutive months. In September, the non-metallic mineral products industry decreased by 3.8% year-on-year, with the decline narrowing by 1.7 percentage points from the previous month. Steel production was 11.731 million tons, a decrease of 2.4% year-on-year; cement production was 16.847 million tons, a decrease of 10.3%.
3) Due to intense competition in the industry, the production of the automotive manufacturing industry has slightly slowed down. The automotive manufacturing industry increased by 4.6% year-on-year, an increase of 0.1 percentage point from the previous month; the two-year compound growth rate was 6.8%, a decrease of 0.4 percentage points from the previous month. Automobile production was 2.839 million vehicles, a decrease of 1.0%.6 Infrastructure Investment Surges, with Accelerated Funding and Project Implementation
In September, infrastructure construction investment grew by 17.5% year-on-year, an increase of 11.3 percentage points from August. Infrastructure construction investment (excluding hydropower, electricity, and gas) grew by 2.2% year-on-year, an increase of 1.0 percentage point from August.
1) High growth in investment in the production and supply of hydropower, electricity, and gas. Investment in hydropower, electricity, and gas in September grew by 31.8% year-on-year, an increase of 9.9 percentage points from August. High profitability in the industry has driven high investment, with the total profit for the hydropower, electricity, and gas industry in 2022, 2023, and January-August 2024 growing by 41.8%, 54.7%, and 14.7% year-on-year, respectively. The State Grid has increased its budget for grid construction for the full year.
2) High growth in transportation and storage investment. Transportation and storage investment in September grew by 13.7% year-on-year, an increase of 16.1 percentage points from August. Investment in the railway and road transportation sectors in September grew by 23.9% and 0.1% year-on-year, respectively, increasing by 15.9 and 7.7 percentage points from August.
3) Good performance in water conservancy management. Investment in water conservancy, environmental protection, and public facility management in September grew by 12.7% year-on-year, an increase of 8.1 percentage points from August. Among them, investment in water conservancy management grew by 70.4% year-on-year; investment in public facility management grew by 3.9% year-on-year. The gradual arrival of special bond funds has driven good performance in the water conservancy management industry. As of July, the 1 trillion yuan of special bonds issued in 2023 have been allocated to 15,000 projects, focusing on post-disaster reconstruction and disaster prevention and reduction projects, all of which have started; as of the end of September, 752 billion yuan of the 1 trillion yuan of ultra-long-term special bonds arranged for this year have been issued, supporting the implementation of national major strategies and the construction of safety capabilities in key areas.
The acceleration of infrastructure funding and project implementation has driven a significant increase in the physical volume of infrastructure work. In terms of funding, the issuance of special bonds and ultra-long-term national bonds has accelerated, and the "special" new special bonds and one-time debt limits will alleviate the pressure of local debt. In September, the issuance of new special bonds by localities accelerated, with a total of 3.6 trillion yuan of new special bonds issued in the first three quarters, accounting for 92.5% of the annual quota; the proportion of "special" new special bonds without "one case and two books" continues to increase, which may be used to repay existing debts to alleviate local debt pressure; on October 12, the Ministry of Finance stated that it intends to introduce the largest debt support measures in recent years, increasing the debt limit on a large scale in one go, to replace the existing implicit debt of local governments; it is expected that the pressure of local government debt will be significantly alleviated. The previous issues of poor project management and lack of supervision of special bonds have also been taken seriously, with 2.3 trillion yuan of special bond funds available for local use in the last three months, which is expected to strongly support infrastructure investment.
In terms of projects, the construction of major projects in many provinces and cities has accelerated. Many places have clearly required improving the maturity of projects to ensure that physical work is formed as soon as possible after the funds are allocated, and to prioritize projects with high maturity. As the traditional construction peak season, "Golden September and Silver October," the construction progress of major projects such as railways and electricity in various places has accelerated, driving high investment growth. In the first three quarters, the investment in projects with a planned total investment of 100 million yuan or more grew by 7.1% year-on-year, driving the growth of all investments by 3.9 percentage points. On September 29, the State Council deployed to accelerate the implementation of 102 major projects, with infrastructure investment playing an indispensable role as an important means of counter-cyclical regulation in this round of large-scale economic stimulus plans. Various places will continue to accelerate the promotion of major projects and speed up the formation of physical work, and it is expected that infrastructure investment will maintain high growth in the fourth quarter.
7 Manufacturing Investment Grows Rapidly, Benefiting from the Development of New Quality Productivity and Equipment RenewalIn September, manufacturing investment grew by 9.1% year-on-year, an increase of 1.8 percentage points from August. There has been an intensified divergence in the decision-making on fixed investment across various sub-sectors of the manufacturing industry, with enterprises that have higher profit margins and more significant economies of scale showing a stronger willingness to invest, such as manufacturing investments related to new infrastructure and new quality production forces, which continue to maintain a high growth rate. Under the policies of manufacturing transformation and upgrading, as well as large-scale equipment renewal and transformation, it is still expected that high-tech investment in manufacturing will continue to support fixed investment. In the first three quarters, investment in the consumer goods manufacturing industry increased by 14.9%, investment in the equipment manufacturing industry increased by 9.4%, and investment in the raw materials manufacturing industry increased by 8.8%. The growth rate of industrial enterprise profits has narrowed. From January to August, the total profit of industrial enterprises grew at a year-on-year rate of -0.1%, a decrease of 4.0 percentage points from January to July.
1) Industries related to new quality production forces have shown strong growth. In September, the manufacturing of transportation equipment such as railways grew by 37.9% year-on-year, maintaining double-digit growth. The government work report for 2024 mentioned the need to "vigorously promote the construction of a modern industrial system and accelerate the development of new quality production forces." On July 21, 2024, the Third Plenary Session of the 20th Central Committee of the Communist Party of China issued the "Decision of the Central Committee of the Communist Party of China on Further Comprehensively Deepening Reform and Promoting Chinese-style Modernization," which proposed to "improve the system and mechanism for developing new quality production forces according to local conditions." Cultivating new industries is a key task, and developing strategic emerging industries and future industries is crucial, with related manufacturing expected to continue to grow rapidly.
2) The policy for equipment renewal continues to advance, and various equipment manufacturing industries are expected to maintain a high growth rate. In September, investment in general and special equipment manufacturing increased by 21.2% and 7.9% year-on-year, respectively. In March 2024, the State Council issued the "Action Plan for Promoting Large-scale Equipment Renewal and Consumer Goods Replacement." In April, seven departments including the Ministry of Industry and Information Technology jointly issued the "Implementation Plan for Promoting Equipment Renewal in the Industrial Field," proposing that by 2027, the scale of equipment investment in the industrial field will increase by more than 25% compared to 2023. On July 25, the National Development and Reform Commission and the Ministry of Finance issued several measures to strongly support large-scale equipment renewal and consumer goods replacement, arranging about 150 billion yuan of ultra-long-term special treasury bond funds for the equipment renewal field. In the first three quarters, investment in equipment, tools, and instruments increased by 16.4% year-on-year, 13 percentage points faster than total investment, driving total investment growth by 2.1 percentage points, with a contribution rate to total investment exceeding 60%.
8. The policy of replacing old goods with new ones has slightly boosted consumption.
The policy of replacing old goods with new ones has promoted the recovery of consumption. In September, the total retail sales of consumer goods increased by 3.2% year-on-year, an increase of 1.1 percentage points from the previous month; the month-on-month growth was 0.4%, an increase of 0.4 percentage points from the previous month.
The increase in commodity retail and a slight decline in catering income. In September, the year-on-year growth of commodity retail and catering income was 3.3% and 3.1%, respectively, with changes of 1.4 and -0.2 percentage points from the previous month.
Looking at the industry, there is a divergence between necessities and discretionary consumer goods; under the promotion of the policy of replacing old goods with new ones, consumption of home appliances and automobiles has warmed up; the category of petroleum and products continues to show negative growth.
1) Necessities continue to grow, and most discretionary consumer goods show negative growth. In September, the year-on-year growth of grain, oil, food, and daily necessities was 11.1% and 3.0%, respectively, with increases of 1.0 and 1.7 percentage points from the previous month.Economic divergence, with emerging economies performing better than developed ones, but growth momentum is weakening. In September, exports to Russia, Brazil, and India increased by 16.6%, 8.6%, and -9.3% year-on-year, respectively, and by 9.6%, -29.9%, and -10.1% month-on-month, respectively; exports to the United States, ASEAN, and the European Union increased by 2.2%, 5.5%, and 1.3% year-on-year, respectively, with changes of -2.8, -3.4, and -12.1 percentage points from the previous month; the month-on-month changes were -0.5%, -0.5%, and -10.2%, respectively.
Import weakness, insufficient domestic demand. In September, imports increased by 0.3% year-on-year, a decrease of 0.2 percentage points from the previous month. By country, imports from ASEAN, Japan, and South Korea increased by 4.2%, -7.1%, and 2.6% year-on-year, respectively, and imports from Vietnam increased by 5.4% year-on-year; imports from the European Union and the United States decreased by -3.5% and 6.7% year-on-year, respectively, with changes of -3.5 and 12.2 percentage points from the previous month. By product, among the main commodities, the import value of crude oil, iron ore, copper, steel, and coal decreased by -10.7%, -8.0%, 10.17%, -11.2%, and 8.9% year-on-year, respectively, and the import volume decreased by -0.6%, -2.9%, -0.3%, -13.4%, and 12.9% year-on-year, respectively. High-tech and mechanical and electrical products imports increased by 10.0% and 5.1% year-on-year, respectively, and integrated circuits increased by 11.0%; automobile imports decreased by -18.9% year-on-year, a significant drop of 18.0 percentage points from the previous month.
M1 growth rate has hit a record low for six consecutive months, indicating sluggish economic vitality.
In September, the outstanding social financing increased by 8.0% year-on-year, a decrease of 0.1 percentage points from the previous month. The new social financing scale was 3763.4 billion yuan, 369.2 billion yuan less than the same period last year.
Structurally, government bonds are the main support. 1) Less increase in on-balance-sheet lending. In September, the new RMB loans in the social financing scope were 1974.2 billion yuan, 562.7 billion yuan less than the same period last year. 2) Less increase in off-balance-sheet financing. In September, off-balance-sheet financing increased by 17.1 billion yuan, 129.7 billion yuan less than the same period last year. 3) More increase in government bonds. In September, the net financing of government bonds increased by 1535.7 billion yuan, 543.7 billion yuan more than the same period last year, which is in line with the seasonal trend, and government bonds have been the main support for social financing for five consecutive months. Currently, from January to September, local special bonds have been issued for 3.6 trillion yuan, accounting for 92.3% of the annual progress, an increase of 42.3 percentage points from August 13. 4) More reduction in direct financing. Direct financing decreased by 17.89 billion yuan, 277.4 billion yuan more than the same period last year.
The overall credit growth rate has declined, with less increase in corporate and residential loans. In September, the credit balance growth rate of financial institutions was 8.1%, a decrease of 0.4 percentage points from the previous month, with new RMB loans of 1590 billion yuan, 720 billion yuan less than the same period last year. New corporate loans were 1490 billion yuan, 193.4 billion yuan less than the same period last year; new residential loans were 500 billion yuan, 358.5 billion yuan less than the same period last year.
The M2 growth rate has increased, while the M1 growth rate has hit a record low for six consecutive months, and the M2-M1 spread has further widened. The M2 year-on-year growth rate was 6.8%, an increase of 0.5 percentage points from the previous month; the M1 year-on-year growth rate was -7.4%, setting a new record low, a decrease of 0.1 percentage points from the previous month. Non-bank deposits increased by 910 billion yuan, a significant increase of 1575 billion yuan year-on-year; new corporate deposits were 770 billion yuan, an increase of 569 billion yuan year-on-year. New residential deposits were 2.2 trillion yuan, 331.6 billion yuan less than the same period last year.
CPI and PPI continue to decline, indicating insufficient domestic demand.Low inflation in September, with the core contradiction still being insufficient demand. The CPI increased by 0.4% year-on-year and remained flat month-on-month. The peak season for summer travel and tourism has ended, leading to a decrease in service prices; the PPI decreased by -2.8% year-on-year, marking 24 consecutive months of negative growth, and the decline in PPI year-on-year was exacerbated this month due to the decrease in commodity prices and import-related factors.
Specifically,
The increase in food prices has slowed down, with vegetables rising again on the high base of last month. In September, the food category increased by 0.8% month-on-month, down 2.6 percentage points from the previous month; the food category increased by 3.3% year-on-year, up 0.5 percentage points from the previous month. The month-on-month prices for fresh vegetables, pork, eggs, and fresh fruits were 4.3%, 0.4%, 2.1%, and 2.1%, respectively, down 13.8, 6.9, 0.7, and 1.7 percentage points from the previous month.
Non-food prices have been negative for two consecutive months, with the decline in international crude oil prices and reduced travel demand being the main reasons; durable goods prices continue to fall; rental housing prices trend downward. In September, non-food prices decreased by -0.2% month-on-month, with the decline narrowing by 0.1 percentage point; year-on-year, they decreased from 0.2% to -0.2%. Airline tickets, hotel accommodation, and tourism prices decreased by 14.8%, 7.4%, and 6.3%, respectively; rental housing prices decreased by -0.1% year-on-year.
The "pig cycle" may enter a fluctuation range. In September, pork prices increased by 16.2% year-on-year, up 0.1 percentage point from the previous month; month-on-month, they increased by 0.4%, down 6.9 percentage points from the previous month. As of October 12, 2024, the average wholesale price of pork was 25.06 yuan/kilogram, a decrease of 10.5% from 27.68 yuan/kilogram on August 28. After the production capacity stock approached the balance point, it showed a fluctuating trend, making it difficult to break below the normal level.
The PPI continues to show negative growth, mainly due to insufficient demand for industrial products and the decline in commodity prices; prices across the oil, steel, coal, and non-ferrous metal industries generally decreased, as did consumer goods manufacturing prices. In September, the PPI decreased by 2.8% year-on-year, with the decline widening by 1.0 percentage point from the previous month; month-on-month, it decreased by -0.6%. The price of industrial robot manufacturing increased by 0.6%; the price of lithium-ion battery manufacturing decreased by 0.3%, and the price of new energy vehicle manufacturing decreased by 0.1%.
The PMI hits a low at 12, below the boom-bust line for five consecutive months.
In September, the manufacturing PMI was 49.8%, 0.7 percentage points higher than the previous month, indicating a contraction in business activity, weaker than seasonal patterns, with insufficient domestic demand being the main issue. Production and demand picked up, but the new orders index contracted; real estate sales remained weak, and a significant drop in ex-factory prices suppressed corporate profits, leading to operational difficulties for small and medium-sized enterprises.The production index and new orders index stood at 51.2% and 49.9%, respectively, increasing by 1.4 and 1.0 percentage points from the previous month. The new export orders index was 47.5%, a decrease of 1.2 percentage points compared to the previous month.
The index for the purchase of main raw materials and the ex-factory price index were 45.1% and 44.0%, respectively, both showing an increase of 1.9 and 2.0 percentage points from the previous month.
The PMI for large, medium, and small enterprises were 50.6%, 49.2%, and 48.5%, respectively, which were increases of 0.2, 0.5, and 2.1 percentage points from the previous month. Large enterprises maintained an expansionary trend, while small and medium-sized enterprises remained below the boom-bust line, necessitating vigilance regarding issues such as insufficient demand and the need to consolidate the recovery momentum of small and medium-sized enterprises.
The construction industry's prosperity was relatively high, while the service industry slowed down. The business activity index for the construction industry was 50.7%, an increase of 0.1 percentage point from the previous month; the business activity index for the service industry was 49.9%, a decrease of 0.3 percentage points from the previous month. Industries such as postal services, telecommunications, broadcasting, satellite transmission services, internet software, and information technology services, as well as monetary financial services, all had business activity indices above 55.0%, indicating a relatively high level of prosperity; industries related to summer travel, such as railway transportation, water transportation, and cultural, sports, and entertainment, saw their business activity indices fall into the contraction range.
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