China: China’s recent economic data provides a glimmer of hope for its recovery, but significant challenges remain.

In September, exports declined by 6.2 percent, a slight improvement from August’s 8.8 percent drop, surpassing expectations of a 7.6 percent fall. This positive trend aligns with increased export orders driven by the global electronics sector, suggesting a potentially brighter trade outlook in 2024.

“There’s increasing evidence that the cyclical upturn in the global electronics sector is driving a bottoming-out of global trade, and China’s trade data is the latest sign,” said Xu Tianchen, senior economist at the Economist Intelligence Unit.

“This gives reason for optimism about a rosier trade picture in 2024,” he added.

South Korean exports to China, particularly semiconductors, indicate growing demand for components among Chinese manufacturers. The Baltic Dry Index, reflecting global trade activity, also reported notable growth in September. However, China’s trade still faces complexities and external challenges, especially regarding exports to ASEAN nations, its largest trade partners.

China’s commodity data presents a mixed picture, with crude oil imports rising by 14 percent and copper imports falling by 5.8 percent year-on-year. Overall, merchandise imports declined by 6.3 percent, indicating a gradual domestic demand recovery and a trade surplus of $77.71 billion in September.

Despite these positive signs, China’s domestic demand remains uncertain due to the ongoing property crisis, employment uncertainties, and weak confidence among private firms. Credit growth may stabilize, with new bank lending at 2.31 trillion yuan in September, signaling potential policy support to bolster growth.

“The housing market appears to have stabilised recently thanks to the latest round of property easing measures,” said Julian Evans-Pritchard, head of China Economics at Capital Economics, while signalling more policy support will likely be needed to shore up growth.

“The PBOC has hinted that additional monetary support is on its way… which in turn should underpin a partial economic recovery over the coming quarters,” he added.

Some economists doubt China’s ability to meet its annual growth target of around five percent. The economy started losing momentum in the second quarter, prompting policymakers to implement measures to support recovery. Premier Li Qiang emphasized the need to understand the challenges ahead and strengthen policy reserves.

Deflationary pressures persist, with consumer prices faltering and factory-gate prices shrinking. However, recent data, including positive factory activity and retail sales, offer some relief. Beijing is considering issuing at least one trillion yuan of additional sovereign debt for infrastructure projects, but its impact may not be felt until 2024.

Most analysts argue that piecemeal measures will not be sufficient to get the economy back on track. While there is hope for China’s recovery, the road ahead remains uncertain, and additional measures may be necessary to navigate the transition to a less leveraged economy.

“Whatever does emerge from Beijing over the coming months, it likely will not be quick enough to make any meaningful difference to 2023,” said Robert Carnell, regional head of research Asia-Pacific at ING in a note.

“At best, it should be viewed as a pain management tool for the transition to a less leveraged economy.”