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Chinese factory activity improved for the first time in half a year in October, providing a positive sign for policymakers as they gear up for an important fiscal package to bolster the world’s second-largest economy.
The latest data release before the upcoming meeting of China’s National People’s Congress showed that the official purchasing managers’ index for October was 50.1, higher than the previous month and above analysts’ expectations. The non-manufacturing PMI was also slightly below forecasts but stronger than September’s reading.
Analysts believe that China may need to invest up to $1.4 trillion over three years to restore consumer confidence and stimulate economic growth. However, there are expectations that the government will focus on addressing local government debt issues and supporting the property market with the upcoming fiscal stimulus package.
Recent monetary stimulus measures have already had a positive impact on the stock market and interest rates, with the government aiming to boost infrastructure projects and hit its growth target.
Despite the economic challenges, the government is also prioritizing structural reforms and reducing financial risks in addition to sustaining economic growth. It remains to be seen how the fiscal stimulus package will be implemented and whether it will effectively support the Chinese economy.
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Nomura economist Ting Lu criticized reports that a significant portion of the stimulus package would involve local government debt swaps, arguing that this would not lead to increased spending and therefore could not be considered a stimulus. Instead, economists suggest that direct assistance to households through social welfare programs and healthcare services would be more effective in boosting consumer confidence and spending.
Chi Lo from BNP Paribas Asset Management highlighted that Beijing has multiple policy goals beyond economic growth, including structural reforms and financial risk reduction. The government’s approach to fiscal spending and stimulus remains a subject of debate among economists and policymakers.