Weak Consumption, Supply-Driven Growth

Summary of Key Points from the Conference Call Industry Overview - The report focuses on the China Economics sector, particularly analyzing the macroeconomic conditions and consumer behavior in China as of December 2024 [1]. Core Insights - GDP Growth: The GDP for 4Q24 is projected to be strong at 5.5% QoQ SAAR, but the growth is primarily supply-driven, indicating an imbalance in supply and demand [1]. - Stimulus Impact: The first round of stimulus has positively influenced infrastructure capital expenditure (capex) and durable goods sales, but consumption outside the trade-in program has weakened, reflecting a subdued consumer appetite due to uncertainties in job and income growth [1]. - Retail Sales Performance: Retail sales excluding automobile and housing-related goods have softened to 2% YoY in October-November, down from 3.5% YoY in 3Q, indicating a crowd-out effect from policy support and weak consumer sentiment [1]. - Future Projections: The second round of stimulus, amounting to Rmb2 trillion, is expected to be modest and supply-centric, which may not sufficiently counteract the looming threats from US tariffs. GDP growth is anticipated to soften again in 2Q25 due to ongoing debt-deflation dynamics and tariff hikes [1]. Additional Important Points - Consumer Sentiment: The report highlights that consumer sentiment remains weak amid uncertainties regarding job security and income growth, which could hinder the effectiveness of stimulus measures [1]. - Deflationary Pressures: The expectation of continued deflationary pressures suggests that the economic rebound may be short-lived without significant consumption stimulus [1]. - Infrastructure and Export Focus: The GDP growth is expected to sustain at approximately 5% SAAR in 1Q25, driven by infrastructure and export front-loading, but is likely to dip again in subsequent quarters [1]. This summary encapsulates the critical insights and projections regarding the economic landscape in China, emphasizing the challenges and potential risks that may affect future growth.