20251117-招银国际-Broad-based_slowdown_signals_intensifying_headwinds_8页_1mb

China Economic Perspectives: Broad-based Slowdown Signals Intensifying Headwinds

Overview

China's economy faces broad-based slowdown in October 2025, though nominal GDP growth remains below target pressure. Retail sales hit a one-year low at 2.9% YoY growth, dragged by fading trade-in subsidies and weak consumption. Infrastructure and property investments contract sharply, while manufacturing investment faces headwinds from the anti-involution policy. The property market continues to decline with a deep contraction in gross floor area (GFA) sold and started, accumulating inventories. The central bank and Ministry of Finance are expected to introduce further policy easing—including LPR cuts and fiscal support—to stabilize the economy.

Key Findings

Property Sector

• Market Decline: Property market remains deeply contracted due to elevated inventory and fading policy stimuli. GFA sold for commercial building contracted by 6.8% YoY in 10M25, while residential housing starts dropped to 359 million m², short of pre-pandemic levels.
• Price Dips: New and second-hand housing prices fell 0.5% and 0.7% in recent months. Months of supply surged to 20.5 months.
• Policy Outlook: Continued pressure on property market may necessitate significant policy easing in 4Q25–1Q26, excluding unconventional measures like direct government purchases or mortgage subsidies.

Retail Sales

• Sluggish Growth: Retail sales growth decelerated to 2.9% YoY in October from 3% in September. Impacts of fiscal stimulus are fading, with key sectors like home appliances (-14.6%) and auto (-6.6%) posting significant declines.
• Holiday Boost: Temporary uplift from the golden week holiday and loosened dining restrictions, but sustained slowdown expected.
• Consumption Moderation: Full-year retail sales growth likely to moderate to around 4.2% in 2025.

Fixed Asset Investment (FAI)

• Overall Contraction: Investment growth dropped to -1.7% YoY in 10M25, missing market expectations. Infrastructure investment deepened its contraction to -12.1% YoY, while property investment fell -23.1% YoY.
• Sector-Specific Weakness: Manufacturing investment slowed to 2% YoY growth in 2025, dragged by anti-involution policy competition.

Industrial Output

• VAIO Moderation: Industrial output growth slowed to 5.8% YoY in October, missing market consensus. Exports saw a sharp drop to -2.1% YoY, while manufacturing output moderated to -2.1% YoY.
• Export Headwinds: Delivery value for exports declined due to global demand weakness and anti-involution policies.

Policy Recommendations

• Further Easing Expected: PBOC likely to cut LPR by 10 bps and reduce RRR by 50 bps before Q1 2026 to support nominal GDP growth and prevent deflationary pressures.
• Fiscal Support: The MoF may expand support to households and the property sector.
• GDP Projection: 2025 GDP growth likely capped at 4.7%, down from 5% in 2024. Consumption and property remain key vulnerabilities requiring policy intervention.

Conclusion

The Chinese economy faces intensifying headwinds from property stagnation, subdued consumption, and investment weakness. Policy support is anticipated to continue into early 2026 to address deflation risks and stabilize key sectors.