Despite headwinds, China’s GDP may hit the official target of 5.0% in 2024

June 02, 2024

Trusted Insights for What’s Ahead™

• Status of China’s Economy – We have revised our forecast for China's real GDP in 2024 upward to 5.0% from 4.6%. The robust 5.3% growth in Q1 has given much needed “breathing room” for achieving this year’s official target of “around 5%”. The economy only needs to expand by an average of 4.9% over the next three quarters and despite weakness in several indicators in April, including retail sales and property investment, we see no signs of a significant slowdown in Q2. Authorities are also increasing stimulus support, for instance by accelerating the issuance of special treasury bonds with ultra-long maturities, aiming to reach RMB 1 trillion by year end. The government has also recently announced a RMB 300 billion (USD 41 billion) relending program to finance local governments’ purchase of unsold housing units and their conversion into affordable housing.
• Investment Trends – Fixed Asset Investment growth decelerated to 4.2% y-o-y in Jan-Apr from 4.5% in Q1, driven by a slowdown in infrastructure investment and the ongoing deep contraction of property investment. Manufacturing investment remained relatively robust. Looking ahead, it is likely that infrastructure and manufacturing investment will accelerate as more of the RMB 1 trillion in special treasury bonds is issued.
• Consumption Trends – Growth in retail sales decelerated to 2.3% y-o-y in April, down from 3.1% in March. Behind this moderation is last year’s high base of comparison and the fading of pent-up demand that was released in Q1. Consumption growth is likely to remain moderate over the coming months. The softening of demand in the Chinese market is underpinned by deep-rooted structural imbalances that will take time to address. This is why consumer confidence has remained weak despite the measures taken over the past couple of years to support growth.
• Trade Trends – Exports grew by 1.5% y-o-y in April after having contracted by -7.5% in March. But this is not indicative of a strengthening in external demand, since the main driver was the low base of comparison of April 2023. We forecast economic growth in mature economies to slow down in coming months. This, coupled with the impact of trade restrictions, means that external demand for China-made goods is not likely to see a significant upturn.
• Implications for Business – While there are signals that the Chinese economy is stabilizing, growth is mainly being driven by supply-side stimulus. This is not addressing the structural issues underlying ongoing confidence weakness and demand softening, and risks exacerbating deflationary pressures and supply-demand imbalances. MNCs will continue facing a market of weak consumption and intense local competition, which will challenge notions about profitability and the China opportunity. This requires a recalibration of strategies to defend market share by strengthening core competencies and improving risk management, all while maintaining robust alignment between global HQs and China operations.