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A Critical Year in China’s Growth

Mar 25, 2024
  • He Weiwen

    Senior Fellow, Center for China and Globalization, CCG

China economy.jpg

The recently concluded two sessions of China reviewed the country’s economic performance in 2023 and laid out a master plan for 2024, including a GDP growth target, key visions, macroeconomic policies and other measures. Under various unfavorable conditions at home and abroad, China managed 5.2 percent GDP growth last year — 126 trillion yuan ($17.7 trillion), meeting the target set by the previous Two Sessions. It was a significant recovery from the ebb in 2022, which saw 3.0 percent GDP growth. In 2023, more than 12 million new jobs were created, with the registered urban jobless rate at 5.2 percent and a slight CPI rise of 0.2 percent.

With the target of 5 percent GDP growth, Premier Li Qiang defined 2024 as a year of critical importance for the 14th Five-Year Plan, and for China’s modernization. 

Return to the trend line 

China’s economy has experienced lower growth over the past four years, with GDP growth rates at 2.2 percent, 8.4 percent, 3.0 percent and 5.2 percent for 2020-23 in succession. The economy was badly hit by the pandemic in early 2020, before recovering later in the year and ending in 2.2 percent annual GDP growth — notably lower than the 6.0 percent growth rate of 2019. The economy rebounded strongly in 2021, hitting 8.4 percent GDP growth for the year and yielding a two-year average (2020-21) growth rate of 5.2 percent, which was still a full percentage point lower than the previous four years (2016-19) average of 6.2 percent.

Again, a new pandemic outbreak and the subsequent COVID-zero policy led to a new drop in China’s economic growth — to 3.0 percent for 2022. When the restrictions were lifted in early 2023, the economy did not repeat the strong rebound seen in 2021, ending the whole year with 5.2 percent GDP growth and leaving the two-year average (2022-23) at 4.1 percent, a full percentage point down from the previous two-year average of 5.2 percent.

Hence, we have seen a clear downside curve: 6.2 percent average growth rate for 2016-19, 5.2 percent for 2020-21 and 4.1 for 2022-23.

The long-term development goal set by 20th CPC National Congress was to double real GDP during 2021-35 — or 4.7 percent growth per annum — becoming a medium developed economy by then. That goal will definitely be missed if the current downside curve continues.

GDP growth of 5 percent for 2024 is a key test. If the Chinese economy can manage that growth rate on the basis of 5.2 percent growth last year, it will set a new trend line for the next few years at between 4.5 and 5.0 percent growth. That would bring the economy back to the track of sustainable medium-speed growth, thus meeting the goal for 2035. 

Challenges and new forces 

It is by no means easy to meet the 5 percent growth goal for this year. On the demand side, retail sales increased by 7.2 percent in 2023. It was on the very low base of 2022, when it fell by 0.2 percent, making the two-year average 3.5 percent. Likewise, on the supply side, industrial output value increased by 4.6 percent in 2023 on a low base of 3.6 percent growth in 2022 (a two-year average of 4.1 percent).

Manufacturing PMI over recent months has been weak. After hitting 50.2 — in the expansion zone — in September, it has fallen into the contraction zone (under 50.0) to 49.1 in February.

In 2023, GDP growth was driven predominantly by final consumption, which contributed 4.3 percent points. As described above, it was on a very low base in 2022 and will not repeat itself in 2024. Final consumption is likely to contribute around 3 percentage points to GDP growth in 2024.

Capital formation, which contributed 1.5 percentage points last year, could make a slightly higher contribution of between 1.7 to 1.8 percentage points, as shown by actual performance in the pre-pandemic years 2016-19. Much will depend on the performance of net exports, which contributed negative 0.6 percentage points. A smaller negative contribution, or even a positive contribution, will be crucial for meeting the 5.0 percent GDP growth target this year.

The fundamental — and only — way to ensure more robust and sustainable growth is a new pattern of high-quality growth. The growth rate can only be lifted and sustained by new productive forces, a key point in the Government Work Report delivered by Premier Li Qiang.

The report called, first of all, for building up a modern industrial system with new productive forces, including (among other keys) new-energy vehicles, nitrogen energy, new materials, biotechnology, a commercial aerospace industry, a low-altitude economy, quantum technology and life sciences. It also called for setting up clusters of future industries, especially encouraging digital economy clusters. Rejuvenating the country through science and technology is at the heart, and 700 billion yuan will be appropriated for that purpose.

China has been making considerable progress in this direction. The trunk line civil aircraft C919 entered commercial service in 2023. China’s NEV output accounted for 60 percent of world total. More progress and significant achievements appear certain in 2024.

Consequently, the government will adopt an active fiscal policy, increasing the fiscal deficit by 180 billion yuan (3.0 percent, which is still in a reasonable range) and increase spending by 1.1 trillion yuan to 28.5 trillion. The government also plans to issue ultra long-term treasury bonds to support the development of new productive forces.

The report emphasized high-level opening-up in 2024, further cutting down the negative list, with no restrictions on foreign investment in the manufacturing sector and expanding market access in such fields as telecom and medical services. 

Opportunities for Americans 

The 5 percent GDP growth this year near 5 percent growth in coming years will undoubtedly provide fresh opportunities for the U.S. business community, which will find almost limitless opportunities as Chinese market demand expands, especially in the above-mentioned key industries. A recent survey by AmCham South China found that more than 70 percent of members plan to continue investing in China. Following the right track — which was laid out in the San Francisco Vision of Chinese President Xi Jinping and U.S. President Joe Biden in November — bilateral relations have shown gradual stabilization and improvement. In January and February, China-U.S. two-way trade showed positive growth of 0.5 percent year-on-year, compared with and 11.6 percent decline in 2023, according to China Customs.

The governments and business communities of the two countries should lose no time in taking advantage of China’s economic growth and high-level opening-up. They should enhance further cooperation and bring fresh benefits for the business communities and peoples of our two countries in 2024 and beyond.

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