China’s Economy Faces Challenges Ahead

The World Bank and UBS expect China’s 2024 GDP will grow 4.5%; Moody’s projected 5% is similar to forecasts by most Chinese economists. As of late January, 27 of 31 Chinese provinces and metropolitan cities had published their 2024 GDP targets — 22 set their targets lower than 2023, and five higher than 2023.   

On 17 January China’s National Bureau of Statistics reported that China’s GDP in 2023 grew 5.2%, exceeding the government target of 5% and reaching $17.52 trillion. This was a drop of 0.5% in dollar terms from 2022, the first negative growth since 1994, which Chinese economists attribute to the 4.55% depreciation of the RMB against the dollar in 2023. 

• International analysts are typically suspicious of Chinese government data. For example, the US think tank Rhodium Group estimates that the real figure for China’s 2023 GDP growth was 1.5%; the Japanese economic media outlet Nikkei Asia believed it was 4.6%.

Foreign Trade:  ASEAN remained China’s largest trade partner in 2023 with a total trade volume of $911.7 billion (down 4.9%). 

• Trade with the EU dropped 7.1% to $782.9 billion. 
• Trade with the US dropped 11.6% to $664.45 billion, while China’s exports to the US were $500.29 billion (down 13.1%). 
• Machinery and electronic products constituted 58.6% of China’s export value.
• Electric vehicles, lithium batteries, and solar cells were new export drivers in 2023 ($148.7 billion). 
• More than 600,000 companies engaged in foreign trade — 556,000 of these were private companies that contributed 53.5% to China’s total foreign trade volume. 
• Guangdong Province remains China’s largest trader, accounting for 19.91% of China’s foreign trade.

Consumer goods retail sales rose 7.2% to RMB 47.15 trillion ($6.6 trillion); however, the Consumer Price Index (CPI) rose only 0.2%, much lower than the government target of 3%, suggesting weak demand.   

• After the lifting of Covid lockdowns, merchandise sales were up at department stores (+8.8%), convenience stores (+7.5%), specialty stores (+4.9%), and branded stores (+4.5%). Online merchandise sales reached RMB 15.44 trillion ($2.2 trillion), up 11% YoY, posing serious competition with sales at physical stores. 

Fixed assets investment recorded RMB 50.3 trillion ($7.1 trillion), up 3% YoY. 

Disposable income per capita was RMB 39,218 ($5,451), up 6.1% YoY.

Urban unemployment fell 0.4% YoY to 5.2%. 

• Employment pressure remains high. This year 11.79 million college graduates (up 210,000 over 2023) are expected to join the labor market. 

Major Economic Challenges

Both Chinese and international analysts believe three factors will weigh heavily on China’s economy this year, as they did in 2023:

Longer term investing in China was meager.

Continued low public confidence points to uncertainty about China’s economic future. China’s stock market declined 13% last year, and on 18 January the benchmark CSI 300 dropped to its lowest point in four years. 

• On 23 January Chinese media reported that the government will allocate RMB 300 billion to rescue the stock market. China’s securities administration reportedly has issued a directive to restrict speculation and short selling. Reacting to the government measures, the CSI 300 index returned above 2,900 points on 25 January.
• On 24 January China’s central bank announced it was lowering loan interest rates for agriculture and small enterprises by 0.25%.
• Starting 5 February, the Required Reserve Ratio for Chinese banks will be lowered by 50 basis points, releasing about RMB 1 trillion in liquidity to the market. 

Rising local government debt. In 2023 local governments issued RMB 9.32 trillion in bonds and refinanced RMB 5.66 trillion in debt, both new historical records. At the end of 2023 local government debt exceeded RMB 40 trillion. 

• In October the central government issued RMB 1 trillion in national bonds for local government debt relief and ordered local governments to cut expenditures and investments. Locales in several provinces have reduced employee salaries and laid off workers — these actions may exacerbate China’s growing unemployment. 

Distressed real estate industry. China’s real estate industry is traditionally a major driver for China’s economy and a key resource for local government revenue. According to Moody’s, China’s real estate and its related industries in 2022 accounted for:

• 24% of China’s GDP
• 26% of urban employment
• 30% of local government revenue
• 69% of Chinese families’ assets
• 26% of Chinese bank loans 

In 2023 China’s investment in real estate dropped 9.6%, new construction declined 7.2%, and sales dropped 6.5%. Offshore debt owned by Chinese real estate companies due in 2023 was $141 billion. 

• Since the second half of 2023, the Chinese government has been reversing some of its restrictive real estate sales policies in an effort to rejuvenate the market. On 5 December, 24 Chinese banks provided an RMB 3.1 trillion line of credit to 50 major real estate companies to help them pay for loans and continued construction.