Title page 1

Contents 4

Acknowledgements 3

Executive Summary 7

I. Recent Economic Developments 11

Growth remains resilient despite headwinds 11

Shipments to emerging markets supported exports amid trade uncertainty 13

Inflation remains muted even as policy support helped boost some goods prices 15

Easing revenues and rising debt have tightened fiscal space at the local level 16

Private credit demand continued to soften despite monetary easing 17

II. Outlook, Risks, and Policy Implications 22

Outlook and risks 22

Policy implications 23

III. Special Focus: Household Savings and Financial Intermediation in China 26

China's high household savings matter for rebalancing domestic demand 26

How household savings flow through the financial system 27

Implications for domestic demand and priorities for financial rebalancing 30

References 34

Tables 4

Table 1. China selected economic indicators, 2022-2027 22

Table 2. Structure of household balance sheet 28

Table 3. Selected policy trade-offs 33

Figures 4

Figure 1. Growth was steady in Q3, but the soft labor market weighed on consumer demand 12

Figure 2. The property sector experienced renewed weakness in Q3 13

Figure 3. Export growth has remained robust, despite trade policy uncertainty 14

Figure 4. Strong current account gains were offset by capital outflows 15

Figure 5. Policy measures have provided only a modest boost to consumer and producer prices 16

Figure 6. Fiscal pressures on local governments have intensified due to lower land lease revenue and higher debt 17

Figure 7. Government bond purchases drove credit growth, while household and corporate demand remained weak 18

Figure 8. Bank capital buffers remained stable while equity markets posted solid gains 19

Figure 9. Local governments in lower-income provinces face fiscal challenges that could widen regional disparities 21

Figure 10. Poverty reduction will continue, albeit slower than in previous years 23

Figure 11. Gross domestic saving rates by country groups 26

Figure 12. Composition of domestic savings 26

Figure 13. Urban depositors' willingness to consume, save, and invest 27

Figure 14. Deposit inflows into banks by source 29

Figure 15. Real deposit rates 29

Boxes 4

Box 1. Local government debt and regional income disparities 20