Stabilizing economy augurs well for global growth
Rebound of trade, investment, manufacturing, and tourism boom key positives
China’s economy is showing fresh signs of stabilization with a solid first-quarter performance this year, laying a strong foundation for achieving its preset growth target of around 5 percent for 2024, said economists and global executives.
Expressing confidence in China’s economic trajectory, they said they foresee the nation maintaining its pivotal role as a primary contributor to global economic growth in 2024.
They, however, also cautioned the latest economic data showed a mixed picture of recovery, and advocated intensified endeavors to bolster domestic demand, address structural challenges and continuously deepen reforms and opening-up.
Liu Xueyan, director of the Macroeconomic Situation Research Office at the Chinese Academy of Macroeconomic Research, said China got off to a good start in 2024 with strong first-quarter GDP growth, steady growth in manufacturing and brightening social expectations.
“With a robust foundation laid in the first quarter, renewed market confidence and ample room for policy adjustment in the pipeline, China will be on track for steady recovery in the second quarter,” she said.
Looking ahead, Liu said she believes China’s 2024 annual growth target of around 5 percent is achievable. “With rapid growth in resident incomes, improving urban employment, coupled with policy support, optimism is brewing over China’s consumption growth this year.”
The five-day May Day holiday again proved to be a bumper time for tourism this year. It saw 295 million domestic trips, with a 7.6 percent year-on-year growth and an increase of 28.2 percent compared to that of 2019. Domestic tourism revenue reached 166.89 billion yuan ($23.16 billion), up 12.7 percent yearon-year and an increase of 13.5 percent over the same period in 2019, according to the Ministry of Culture and Tourism.
“In terms of investment, with the optimization and adjustment of real estate policies, the downward impact of real estate investment will weaken this year,” Liu said. “Meanwhile, manufacturing and infrastructure investment will continue to rebound backed by forceful fiscal support, including the issuance of ultra-long-term special treasury bonds and local government special bonds.”
On exports, Liu noted China’s foreign trade with countries involved in the Belt and Road Initiative is expanding from traditional export markets to broader regions, and exports of the “new three” — passenger electric vehicles, lithium-ion batteries and solar cells — will continue to support the steady growth in foreign trade.
Latest data from the National Bureau of Statistics showed an official snapshot of the stabilizing economy, as China’s manufacturing activity expanded for the second consecutive month in April.
China’s official purchasing managers index for the manufacturing sector stood at 50.4 in April versus 50.8 in March, NBS data showed, above the 50-point mark that separates growth from contraction. The country’s official composite PMI, which includes both manufacturing and nonmanufacturing activities, came in at 51.7 in April, down from 52.7 in March, the NBS said.
Meanwhile, the Caixin China General Services Purchasing Managers’ Index, which focuses more on small and medium-sized enterprises and exporters, came in at 52.5 in April, down from 52.7 in March, media group Caixin said. Caixin’s composite PMI, which includes both manufacturing and services activities, rose to 52.8 in April from 52.7 in the previous month, recording the highest level since May 2023.
“I think the economy is stabilizing,” said Ben Simpfendorfer, a partner at consultancy Oliver Wyman. “The foundations are there for recovery.”
He said China’s economy still enjoys favorable conditions and factors, given a potential soft landing of the US economy and the stronger growth in the global economy. “I think exports are the primary positive factor.”
While China’s growth target of around 5 percent for this year seems challenging, Simpfendorfer said he believes the goal is “still achievable if the real estate sector begins to stabilize”.
He added that “the real estate sector will remain a drag”, and the correction in real estate investment and sales will take at least another six to 12 months.
“There’s good reason for policymakers to maintain an easy interest rate and credit policy this year,” he said.
To further bolster China’s economic recovery, Simpfendorfer advocated that policymakers should increase fiscal spending in key fields such as health and education.
“That might provide consumers, especially low-income ones, with greater certainty in their household finances and greater confidence to start to spend more on other types of goods and services,” he said. “To see a stronger recovery this year, we need to see consumer spending accelerate.”
Huang Yiping, dean of Peking University’s National School of Development, said that the nation’s economy is relatively stable. “There is hope that the economy may continue to improve, given that the government will expand its fiscal spending and provide more support to economic growth in the coming months.
“The US economy looks like it is experiencing a soft landing, which should be positive for our external economic environment and exports.”
Huang called for more efforts to boost economic recovery and stabilize employment, which will bolster consumer sentiment and increase incomes for households.
He added that the government is allocating more resources to support social welfare, pension and healthcare systems, trying to revitalize rural areas, as well as supporting households in replacing their consumer durables with new ones. “These subsidies, spending and so on would be positive for consumption.”
Given China’s better-than-expected economic performance, both Morgan Stanley and Goldman Sachs have raised their outlook for China’s economic growth this year.
Morgan Stanley has revised China’s 2024 real GDP growth forecast from 4.2 percent to 4.8 percent. Goldman Sachs raised its forecast to 5 percent from 4.8 percent.
Erik Berglof, chief economist of the Asian Infrastructure Investment chief economist of the Asian Infrastructure Investment Bank
Bank, said: “China has been and will remain an important contributor to global growth in the foreseeable future. There is huge potential in the Chinese economy. China graduates around 1.5 million engineers every year. There’s a lot of potential for technological development, more productivity and more economic growth.”
But there are challenges as well, as the broader economy is still facing pressures, including uncertainty in the private sector and weakness in the property sector, which may continue to drag down growth in the short term, he said.
“What China needs to do is exactly what is being announced,” he said. “China needs to create clear conditions and rules on how the private sector can contribute. It needs to focus on innovation, and try to bring new ideas and new ways of organizing things. All that is part of China’s contribution to the global economy.”
A meeting of the Political Bureau of the Communist Party of China Central Committee in April said the country will make moves to actively expand domestic demand, advance large-scale equipment renewal and trade-in of consumer goods and introduce more consumption scenarios and promote people-centered new urbanization. The meeting also called for research on policies and measures to reduce housing inventory and improve the quality of newly added housing.
Xiong Yuan, chief economist at Guosheng Securities, said the key meeting mainly focused on deepening reforms, implementing existing policies, boosting domestic demand and stabilizing the property sector, which will significantly increase market sentiment and stabilize expectations.
“China’s proactive fiscal policy will stay front-loaded. The country will issue ultra-long-term special treasury bonds as soon as possible, and speed up the issuance of local government special bonds,” he said. “On the property front, potential moves may include central funding to support reducing housing inventory and further property policy easing in first-tier cities like Beijing and Shanghai.”
Lu Ting, chief China economist at Nomura, said potential risks in the property sector will remain the major challenge facing China’s broader economy. “We need to take more measures to tackle the property woes, including further proper easing in first-tier cities and some second-tier cities as well as more steps to ensure delivery of presold homes.”
China has been and will remain an important contributor to global growth in the foreseeable future. There is huge potential in the Chinese economy. China graduates around 1.5 million engineers every year.”