Image Courtesy – Tehran Times

China’s economy is poised for the challenges of 2024 after achieving a commendable 5.2% expansion in real terms during 2023. While certain complexities persist in the economic landscape, such as the ongoing downturn in the property sector, local government debt concerns, heightened youth unemployment, and deflationary pressures, the nation remains resilient.

Private consumption is anticipated to play a pivotal role in driving growth, aligning with the government’s focus on economic ambitions. Public investments, though a substantial part of the economic strategy, will complement and support these efforts. Our forecast suggests a real GDP growth of 4.9% in 2024, signaling a steady trajectory despite potential deceleration.

China is actively engaging in diplomatic initiatives with developing economies, showcasing a proactive stance to counterbalance US influence. While the nation remains committed to overseas lending, a more cautious approach is anticipated. In terms of military activities, there is an intensified focus on Taiwan, especially following the election of Lai Ching-te from the China-sceptic Democratic Progressive Party. Notably, our forecast does not include an outright invasion of Taiwan in the period 2024-2028, given the potential for US intervention. However, there is a heightened risk of miscalculation in this delicate geopolitical landscape.

China experienced a gradual economic recovery following the abandonment of its zero COVID policy in late 2022. The Gross Domestic Product (GDP) growth reached 5.2% in 2023, surpassing the previous year’s 3.0% growth rate, though still falling short of historical standards. Recent indicators suggest that China’s GDP growth may be following a slower trajectory compared to much of the past two decades.

The sluggish overall growth can be attributed, in part, to weaknesses in two pivotal sectors of the Chinese economy – the property market and exports. Various facets of the property sector faced challenges, with new home prices witnessing their sharpest decline since early 2015. Exports, a crucial driver of China’s economic growth, recorded a decline of over 6% in October 2023 compared to the previous year, but rebounded in the two subsequent months. Additionally, a deceleration in domestic demand poses an ongoing challenge to China’s economic momentum.

IMF on China

Recent reports indicate that China’s economic growth is expected to decelerate to 4.6%, influenced by subdued exports and a weakened real estate sector, as highlighted by the International Monetary Fund. The world’s second-largest economy, which experienced a growth rate of approximately 5% in the previous year, is projected to see a further slowdown to 3.5% in the coming years, according to the IMF’s forecasts.

The impact of China’s economic downturn, coupled with heightened competition from domestic enterprises, is already evident in the performance of U.S. companies. For instance, Apple (AAPL) witnessed a decline in shares, driven by a decrease in China sales, despite exceeding quarterly result expectations.

As the renowned “world’s factory,” China not only serves as a pivotal market but also stands as the primary source of imports for numerous major corporations, including retail giant Walmart (WMT).

In a separate analysis, the IMF expressed skepticism regarding a recovery in China’s challenged housing market, which constitutes a substantial portion of the country’s economic activity, estimated at around 20%. The fund suggests that investment in homes may witness a decline of up to 60% in China over the next decade, attributed in part to a declining population.

What does the Chinese Growth Model look like?

China is a strategic player when it comes to the question of the economy, with a constant flow of funds into the manufacturing sector. A play that is being emulated by modern-day United States.

Heightened concerns over excessive Chinese industrial capacity flooding the European Union with inexpensive goods are introducing a new dimension to the ongoing trade tensions between the West and Beijing. This conflict initially began with Washington’s imposition of import tariffs in 2018. Brussels’ trade policy is now increasingly adopting protective measures to address the global implications of China’s production-centric, debt-driven development model.

In the past year, Chinese policymakers expressed their intention to elevate domestic demand as a primary driver of economic growth. This shift aims to reduce the world’s second-largest economy’s historical dependence on infrastructure and the property sector. However, instead of directing financial resources towards households, China has diverted them to manufacturers, raising concerns about overcapacity. This shift has exacerbated factory-gate deflation and prompted an investigation by the European Union into China’s electric vehicle sector.

It is important to note that China’s efforts to rebalance its economy have faced obstacles, partly due to a sluggish economic recovery. Redirecting resources to households could entail additional short-term challenges, hindering the nation’s progress towards its rebalancing goals.

What is the story from China’s view point?

China’s commitment to fortifying the role of the financial sector in supporting the real economy has been a focal point of recent efforts, drawing attention from experts and industry insiders. This essay delves into the key developments, policy recommendations, and commitments made by the Chinese government, aiming to present an unbiased perspective on their ongoing initiatives.

Over the past year, financial institutions in China have implemented substantial measures to enhance resource allocation in pivotal areas. Prioritizing scientific and technological innovation, infrastructure, private small and micro enterprises, and green development, they have demonstrated a clear dedication to fostering high-quality development. Dong Ximiao, Chief Researcher at Merchants Union Consumer Finance Company Limited, notes the discernible characteristics of this commitment.

Political advisors in China have articulated a call for continuous enhancement in the financial sector’s capacity, quality, and efficiency. Their emphasis lies in promoting high-level openness within the sector to fortify the nation’s financial industry. These recommendations align seamlessly with the objectives outlined in a central financial work conference convened in Beijing in October of the preceding year.

The central financial work conference underscored the imperative of leveraging additional financial resources to bolster key areas such as scientific and technological innovations, advanced manufacturing, green development, and micro, small, and medium-sized enterprises. The conference further advocated for innovation-driven development strategies and coordinated regional development.