Chinese household sentiment took another knock in December amid growing concerns about the state of the domestic economy. Signs of growing consumer fears were partially explained by the housing market, with developers across the country reporting more weakness. 

Our latest surveys of consumers and corporates were completed before the government’s Central Economic Work Conference, the annual meeting of the leadership to outline policy priorities for the coming year. This year’s meeting ended with another explicit acknowledgment that the economy is under pressure and pledges of  greater support to keep growth stable, including a more aggressive fiscal policy stance and a strong hint that monetary policy could be eased. 

Keen to avoid exacerbating China’s debt problems, the government has so far resisted introducing the kind of aggressive stimulus seen in 2015 and, in particular, during the global financial crisis in 2008. While some sectors have clearly struggled since the government began tightening lending rules and the White House ratcheted up its trade dispute with Beijing, the economy as a whole does not yet appear to be under the same stresses as were seen during those episodes. Our December data included surveys of freight and export companies who said conditions remained generally stable at the end of 2018, if not slightly improved over November. 

But the risks are clearly growing, and we expect the government to intensify the pace and scale of its responses to the slowdown in 2019. Our measure of consumer views on the economy in December hit its lowest level since the start of 2017, while their views towards the housing market deteriorated markedly. Housing developers across all city tiers reported that sales fell for a sixth month, while those in second-tier and smaller cities reported fresh price falls. 

Local governments, which have been under pressure from Beijing for over two years to bring their property markets to heel, may slowly be moving to unwind some restrictions on buying and selling housing. A handful of cities have reportedly begun to ease restrictions and more are likely to follow, even if the central government insists its crackdown on speculation in the housing market continues.

We have argued that the government’s commitment in 2019 to tackling financial risk — one of its three “critical battles” — will be outweighed by its  need to deliver on growth. With credit growth continuing to slow, the urgency is growing to ease policy. 

The FTCR Consumer Index fell 2.5 points to 70 in December, the second-lowest reading since January 2017. All major sub-indices weakened, particularly the index measuring consumer views on the economy’s performance, which dropped 5.6 points to 64.4, also the lowest reading since January 2017. Consumer views towards buying property, either for investment purposes or for living in, were also notably weaker than in November. 

The FTCR Real Estate Index was little changed from last month, languishing near two-year lows with readings of sales and prices suggesting both fell sharply again in December. Developers were also negative on the outlook for January. 

The FTCR Export Index rose to a three-month high of 54.6 in December, suggesting the sector continued to expand at a reasonably strong pace through the end of 2018. The reading was helped by prices and new orders, both of which rose at a faster pace, and by improving profits. 

The FTCR Freight Index was largely unchanged at 51.6 in December, with falling profitability and less optimism among respondents countered by a faster increase in rates charged. 

The FTCR Labour Market Index was a touch weaker, falling 1.7 points to 58.1. A slower increase in demand from the manufacturing and construction sectors outweighed a small rise in service sector demand. 

FT Confidential Research is an independent research service from the Financial Times, providing in-depth analysis of and statistical insight into China and south-east Asia. Our team of researchers in these key markets combine findings from our proprietary surveys with on-the-ground research to provide predictive analysis for investors.