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China economy
OpinionComment
Yu Yongding
Yu Yongding

Opinion | China’s economic prospects are brighter than they appear

  • China can expect a consumption slowdown and negligible contribution of net exports to GDP this year
  • To drive economic growth, investment growth must increase significantly, with quasi-deflation making it possible for the government to boost fiscal stimulus

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Workers produce dragon toys ahead of the start of the Year of the Dragon at a toy company in Chengtou town in eastern China’s Jiangsu province on January 27. Photo: Getty Images
Yu Yongding
The start of 2024 has been marked by a wave of increasingly pessimistic forecasts for China’s economy. While the Chinese government remains optimistic, the International Monetary Fund projects that GDP growth will slow to 4.6 per cent this year, from 5.4 per cent in 2023. Meanwhile, the Chinese stock market rout is expected to continue after share prices fell to their lowest level in five years.
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But China’s economic prospects are brighter than they appear. While the government has yet to publish its own outlook for 2024, most Chinese economists expect it to set an annual growth target of 5 per cent. Given China’s better-than-expected economic performance in 2023, I believe that 5 per cent growth is both necessary and feasible.

Consumption was the main driver of Chinese growth in 2023, accounting for 82.5 per cent of the increase in GDP. The Chinese government has not released its final consumption figures, but retail sales of social consumer goods serve as a useful proxy.

Such sales increased by 7.2 per cent last year, reflecting a recovery in consumer spending after a dip in 2022. But sustaining this growth momentum seems unlikely, and many Chinese economists expect a significant consumption slowdown in 2024.

Weighed down by weaker global demand, China’s net exports declined by 1.3 per cent in renminbi terms in 2023. Given that the global economic outlook is unlikely to improve in 2024, it is reasonable to expect that the contribution of net exports to China’s GDP growth will be minimal.

02:31

China GDP: Beijing’s long to-do list to boost its economy in 2024

China GDP: Beijing’s long to-do list to boost its economy in 2024

Consequently, to meet a 5 per cent GDP growth target, investment growth must increase significantly. China’s fixed asset investment, a proxy of capital formation, rose by only 3 per cent in 2023, however, compared to 5.1 per cent in 2022.

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