Domestic activity data deteriorated more than market expectations in August again. 

More worryingly but not surprisingly, the timid easing measures so far are very far from enough to stem the downward trend in domestic demand.

The decline in housing prices picked up pace again; infrastructure growth slowed sharply despite a notable acceleration in government borrowing; and retail sales growth slipped further, despite better home appliances sales on the back of subsidies.

High-end manufacturing capex and exports did well, but relying on external demand is unsustainable and dangerous.

The labour market is also deteriorating.

Consequently, deflationary pressure persisted and credit growth cooled further.

 The concerning data may be the reason for the steady stream of news reports recently on potential easing measures, including rate cuts on existing mortgage and allowing special LGB (local government bonds) proceeds for housing destocking.

With the data in hand, 3Q GDP growth is tracking at 4.7%, which means more stimulus is needed to hit the 5% target.

Some or all of these measures are likely to materialize soon, but unlikely to significantly improve the growth outlook.

To lift the Chinese economy out of the downward spiral, a lot more is needed, particularly from the fiscal side.

Policymakers may be postponing such decisions until the US election results are known.

 The reform to lift the retirement age (by 3 years over a 15-year timeframe) is too little and too slow to address China’s pension challenges in the long run but will likely have minimal impact on the labour market in the short term.