短期之痛，长期之利

China Economy Short-term pains, long-term gains Frank Liu(852) 3761 8957frankliu@cmbi.com.hk China’seconomy notably slowed down in 3Q25 despite a lower base last year.Retailsales growth fell to a recent low,with durable goods spendingmoderating as trade-in support faded. Fixed asset investment saw the firstnegative YTD growth infiveyears, as strict local hidden debt discipline and theanti-involution measures weighed on infrastructure and manufacturinginvestment.Theproperty market slid further in early Oct in both volume andprice,prompting potential policy easing in 4Q25.While anti-involutionmeasures may temporarily weigh on growth, they promote long-term economicrebalancing and ease deflationary pressures.The reformsare constructive forthe equity market, as they would boost corporate earnings prospectsandmarket concentration among leading firms. Given that most targeted sectorsarecapital-intensive,with limited impact on employment,the Chinesepolicymakers appear more willing to tolerate short-term painsin pursuit oflonger-term structural gains.The economic slowdown will increase thepossibility of additional monetary loosening and fiscal stimulus ahead, in ourview. We expect the PBOCtofurther cut LPRs by 10 bps and RRR by 50 bpsin November-December. The MoF may expand fiscal support to householdsto stimulate consumption and housing sales.We forecast thatGDP may slowdown to 4.6% in 4Q25 with full-year GDPgrowthat 5%. Bingnan YE, Ph.D(852) 3761 8967frankliu@cmbi.com.hk Source:Wind, CMBIGM 3Q GDP growth notably moderated butcamein line with marketexpectation.China’s GDP growth in YoY terms (all on a YoY basis unlessotherwise specified) moderated to 4.8% in 3Q25 from 5.2% in 2Q25despiteamuch lower base last year, while YTD GDP growth edged downto 5.2%. GDP deflator narrowed to-1% in 3Q25 from-1.2% in 2Q25, asanti-involution campaign drove moderate price reflation in upstreamsectors. We expect the GDPgrowthto slow down to 4.6% in 4Q25 withfull-year GDP at 5%, as consumption, fixedasset investment and exportsfurther decline. Propertysectorslumped in Oct due to higher base.The contraction ofgross floor area (GFA) sold forcommoditybuildingsexpandedto-5.5% in9M25 from-4.7%in 8M25according to NBS.Contraction ofresidentialhousing startsstayed unchanged at-18.3% in9M25 at333millionsq,m,,back to the level in 2003-04, which should support a supply-demandrebalancing in 2026-27.For new housing sales in Octaccording to marketdata, the recovery rate compared to 2018-2019 edged up to 40.5% from40.4% in Sep, stabilizing since July. However,YoY sales in30 major citiesnotably declined by 22.9% in Oct from 8.8% in Aug, with tier-1, 2 &3 citiesdropping32%, 10% and 28% respectively. Second-hand housing salesalsonotably contracted, as theYoY growth of 11 selective cities droppedto-29% in Oct from15%inAug. New andsecond-hand housing pricessaw faster declinesas demand further softened, dipping 0.3% and 1%MoM in Sep. The weakening property market may further weigh ondurablesconsumption and developers’ cash flow, prompting major policyeasing in 4Q25, in our view. Source:Wind, CMBIGM Retail sales growthdropped to a new low as trade-in boost faded.Retail sales growthhitan11-monthlow at3% inSepfrom3.4%, slightlybelow market consensus at 3.1%.Theimpactof trade-insubsidies haslargely run its course, asretailsales ofhome appliances, culture & officeproducts and furnitureslowed downto3.3%, 6.2% and 16.2% in Sep from14.3%, 14.2% and 18.6% in Aug, while telecom equipmentrebounded to16.2%.Autosedged up to 1.6% in Sep from 0.8% in Aug, while the volumeof retail sales notably dropped to-10% in early Oct from 8.5% in Sep duetoahigher base last year. Gold, silver & jewellery moderated from 16.8%to 9.7% as rising gold price weighedon demand.Retail sales may further slowed down in theremainderof the year due toahigher base and thedragfrom demand pull-forward.Looking forward,retail sales maymoderate to 2.8% in 4Q25fromYTD 4.5% in9M25,bringing full-yeargrowth to around 4.1%. FAIgrowthYTDturned negative for the first time infiveyears.TotalFAI growthdropped toYTD-0.5%in9M25 from0.5% in8M25,missingmarket expectations at0%,marking the first negative YTD growth since2020.TheYoYgrowth further contracted to-6.8% in Sep from-6.3%inAug with broad-based softening. Infrastructure investment dipped 8% inSep from-6.4%, asthemoderating government bond issuance in 2Hrelative to 2024constrained fiscal support, with notable moderation in roadtransport,public facility and social welfare.The government’s anti-involutioncampaignhas weighed on manufacturing investment,whichdropped1.9%.Property investmentcontracted to-21.2% in Sep from-19.4%,ashousing market remainedinover-supply. Looking forward, FAIgrowth may remainsubdued in4Q25 with full-year growth at-0.5% in 2025compared to 3.2% in 2024. Manufacturing and infrastructure investmentgrowth is likely to fall from 9.2% and 9.2% in 2024 to 4.2% and 4% in 2025. Industrial outputrebounded.VAIO growthpicked upto 6