00:00It seems like, just from a glance, this is missing the median estimate of really what we've been expecting from economists there.
00:08So certainly that is, in some ways, a bit of a disappointment.
00:11Let's bring in Robin Shing, Chief China Economist here at Morgan Stanley, to tell us a bit more about your takeaway from these numbers, Robin.
00:17It's soft. Fourth quarter is tracking at probably, in real term, 4.5%, below the third quarter's 4.8%.
00:25But what matters more for investors is nominal GDP growth, which is tracking at a very subdued level of below 4%, given these numbers you mentioned.
00:34I think consumption is the biggest concern.
00:37Retail sales are slowing because the trading effects are diminishing, and also property is a big drag.
00:45Inventory is high, broader price declines, fragile confidence in property.
00:49However, you can see policy are in cruise control at this moment.
00:55Yes.
00:56Why do you think there's a lack of urgency?
00:58I would say for the full year, they achieved 5%.
01:02And from the CEWC, the Work Conference, the key message is to continue to focus on advanced manufacturing, on tech innovation.
01:10So it looks like for next year, that's the key message.
01:13There is a small notch to domestic demand, but it's probably not enough.
01:18So how are you looking at 2026 now?
01:21Is it going to be much challenging, given the fact that you say 5% is pretty attainable for 2025?
01:26So we are running at 4.8% in real growth for 2026, and 4.1% in nominal growth.
01:33That's our expectation.
01:35It's time, and again, it's below consensus on nominal GDP.
01:39So it's another year of slow burn for re-inflation in China.
01:44Yeah.
01:45And the reason is, if you look at the policymakers, fiscal envelope is likely to remain flat versus 2025.
01:53I mean, of course, they may allocate a little bit more from that flat deficit to something like domestic demand, consumption,
02:01but it's still quite modest pace.
02:04And on property, the key message here is, God rears over bailouts, right?
02:09So far, all these evidence showed they are less interested in a big rescue plan,
02:15be it inventory purchase or nationalizing developers.
02:19More likely, if the stress deepens, it can provide a little bit of subsidy on mortgages.
02:24All of these are showing, for next year, policy will remain reactive and small.
02:30The consumption side is still, as you mentioned, I mean, that's quite a miss, right, for 1.3% for retail sales.
02:37There is some chatter, I guess, from the Work Economic Conference about optimizing the trade-in programs.
02:44What would that entail?
02:44Do you think that would mean Beijing is willing to increase funding or just kind of keep things from slowing down further?
02:50Well, you are right.
02:51There is a lot of precautionary saving due to this incomplete social safety net in China.
02:58So to get consumption back on a firmer footing, they need three things.
03:03Cyclically, they can do trade-in programs, widening the coverage of category of goods.
03:09Services.
03:10Exactly.
03:11Yeah.
03:11Probably some services vouchers.
03:13But meanwhile, they have to stabilize housing sector.
03:16So, again, that subsidy on mortgage interest rates, which your colleagues reported about three weeks ago.
03:22How effective would that be?
03:24I think it's going to be a stabilizer.
03:26It's not going to reflate in prices that much because it depends on the duration, the magnitude, and how they communicate this subsidy.
03:34But if they do it, at least it's going to make the cycle smoother, probably shortening the painful period of inventory digestion.
03:43But the last but not least, social welfare.
03:46We mentioned the incomplete social safety net.
03:49That's the key reason why consumers, even farmers, migrant workers are saving, not spending.
03:54So they have to provide that injection from central government budget to farmers and migrant workers' social welfare accounts.
04:02So if they deliver all three things, I think it's going to anchor a reflation and a rebalance in China.
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