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China’s 2024 Economic Outlook

Feb 20, 2024
  • Xu Hongcai

    Deputy Director, Economic Policy Commission

The Chinese economy is expected to sustain its steady recovery and development this year, mirroring 2023. Growing by 5.2 percent in 2023, the economy met the policy target set at the beginning of the year and contributed more than 30 percent of global GDP growth. Today, China remains an important engine for the recovery of the world economy in the post-pandemic era. I believe that in the government work report to be delivered by the Chinese premier at the two sessions in early March, the economic growth target for 2024 will be around 5 percent.

First, driven by various policies, the economy is expected to expand by 4.8 percent in 2024. The International Monetary Fund’s latest forecast is 4.6 percent, which is slightly conservative. The actual growth rate depends on the strength of policies designed to spur growth — if they are strong enough, an increase of 5 percent is within reach. In the medium to long term, China’s economy may continue to maintain an L-shaped trajectory and slowly taper to about 4 percent by 2030.

Second, prices are anticipated to stabilize and grow after a period of decline. In 2024, the Consumer Price Index may range between 0 and 1 percent and the Producer Price Index may hover between -1 percent and 0. If these predictions come true, it implies a notable increase in the overall price level compared with 2023 and an uptick in consumer and investment demand. However, the lack of aggregate demand remains prominent and internal driving forces for growth are still insufficient. Therefore, expanding domestic demand remains a top priority on the agenda.

Third, employment is poised to continue improving. The employment landscape in the second half of 2023 displayed marked improvements compared with the first half. As economic activities return to normalcy, demand for labor could gradually rise, and the problems left by the pandemic in previous years could be solved over time. In addition, more baby boomers born in the early 1960s are retiring. Given these factors, I believe that China’s employment situation will see notable improvements from 2024 to 2025.

Fourth, the balance of international payments will improve. As the U.S. Federal Reserve cuts interest rates, the pressure from the depreciation of the yuan against the U.S. dollar and capital outflows are expected to be alleviated. As market interest rates fall in the United States, the value of China’s holdings of U.S. Treasury bonds is likely to increase. Because of the Federal Reserve’s aggressive interest rate hikes in the past two years, the value of China’s U.S. debt holdings has shrunk. For long-term investors, fluctuations in market interest rates are not likely to affect the principal and interest incomes of the bonds they hold; changes in book value, however, may have an impact on public sentiment.

Fifth, investment growth is anticipated to increase. In 2023, the nation’s fixed asset investment grew by 3 percent, dragging down economic growth. To hit a growth target of 5 percent in 2024, therefore, it is important to increase investment growth to 4 to 5 percent. In accordance with the decisions formulated at the Central Economic Work Conference, China needs to expand effective investment and ensure that investment plays a key role in stabilizing the economy. It is advisable to increase policy support in areas such as the silver economy, the digital economy and green industries, while encouraging private and foreign investment in these domains.

Sixth, consumption is projected to register stable growth. In 2023, total retail sales of consumer goods surged by 7.2 percent, and final consumer spending contributed 82.5 percent to GDP growth, playing a fundamental role in the stable recovery of the economy. However, considering the base effect of the 2022 data, growth in total retail sales of consumer goods is expected to return to normal this year, hovering around 5.5 percent.  To bolster consumption, the focus should be on promoting the consumption of big-ticket items, such as houses and cars, as well as healthcare, senior care, cultural services, tourism, sports and entertainment, as well as on creating more opportunities for digital consumption.

Seventh, China’s foreign trade will perform better than last year. In 2023, China’s goods trade increased by 0.2 percent year-on-year; however, the overall value decreased by 5 percent when measured in U.S. dollars. China’s trade surplus stood at $823.22 billion, down from $877.6 billion in 2022. In 2024, as outbound tourism returns to normal, the service trade deficit is expected to expand and China’s trade surplus will decrease, which means that its net exports will still be negative. However, with global trade projected to grow by 3.3 percent in 2024, the growth rate of China’s foreign trade is expected to be roughly in line with the global rate, reaching about 3 percent.

Eighth, the real estate sector will continue its process of adjustment. In 2023, investment in real estate development fell by 9.6 percent year-on-year, with sold areas contracting 8.5 percent to about 1.18 billion square meters. The problem now revolves around dwindling market demand and persistently high inventories. In 2023, the area of ​​houses under construction stood at a high level of 8.38 billion square meters, despite a reduction of 7.2 percent; the area of ​​new housing projects plummeted by 20.4 percent to 954 million square meters; and housing sales hit 11.66 trillion yuan, down 6.5 percent. At the same time, the area of ​​houses for sale at the end of the year was 673 million square meters, an increase of 19.0 percent. 

Thus, it may take a long time to achieve a notable reduction in inventory. As authorities across the country have relaxed restrictions on house purchases in recent months, potential needs could be gradually unleashed. But don’t expect real estate investment and consumption to return to pre-2019 levels.

Ninth, the financial market will achieve overall stability. In 2024, the stock market faced a turbulent start  marked by irrational fluctuations. In the medium to long term, as the economy recovers steadily and the performance of listed companies improves, the stock market has the potential to emerge from a sluggish trajectory, but it will require the joint efforts of all stakeholders. With gradual declines in market interest rates, disintermediation of the banking system will persist and the bond market will continue its slow bullish trend. 

As a result of mounting anticipation of the U.S. Fed’s further cuts in interest rates, the Chinese yuan’s exchange rate may appreciate slightly against the U.S. dollar. Commodity prices could be relatively stable, with oil prices hovering around $70 per barrel. But it is imperative to be alive to potential risks at the local level and to resolve the issue of local government debt in a timely manner.

In conclusion, the Chinese economy will undergo further stabilization and enhancement in 2024. With the intensification of a proactive fiscal policy, the national budget deficit as a percentage of GDP may surpass 3.5 percent. Monetary policy will remain prudent, more flexible and targeted, and there could be multiple reductions in the required reserve ratio and interest rates. 

In the short term, the priority should be adopting counter-cyclical and cross-cyclical policies simultaneously to expand domestic demand. In the medium and long term, high-quality development of the economy must be driven by innovation.

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