Economy Watch | China

A Reasonably Strong Start Into 2024, But Growth Target Will Be Hard to Reach

April 01, 2024

Trusted Insights for What's Ahead™

• Status of China’s Economy – The year kicked off on a reasonably strong note. Given the stimulus measures announced during the Two Sessions, we have upgraded our real GDP forecast for 2024 to 4.6%. Whether this falls within the “around” 5% official growth target for 2024 is hard to tell. Given current economic conditions, getting the growth rate closer to 5% will require more fiscal support than what has been earmarked for this year. Moreover, central authorities’ concerns about debt risks create uncertainty about the further issuance of significant fiscal stimulus.
• Investment Trends – Fiscal support issued late last year bumped up investment growth in early 2024. Growth in fixed asset investment (FAI) accelerated slightly in the first two months of 2024, growing at 4.2% y-o-y, mainly driven by manufacturing investment. An additional RMB 1 trillion in special treasury bonds this year should help infrastructure and manufacturing investment pick up speed in 2024. Real estate investment will continue to be a major drag on growth in 2024.
• Consumption Trends – Retail sales grew 5.5% y-o-y in Jan-Feb 2024, up notably from December, helped by strong Chinese New Year holiday spending. However, looking ahead, the recovery in domestic private consumption to pre-COVID rates will likely extend beyond 2024. Measures suggested at the Two Sessions to boost consumption – most notably old-for-new programs – may help to raise consumption at the margins, but are unlikely to have a substantial or lasting effect without healthy growth in income and employment. 
• Trade Trends –  Export growth improved in the first two months of 2024, increasing 8.2% and 4.5% y-o-y respectively in January and February, up from 2.3% in December. The manufacturing PMI’s new export orders sub-index jumped above the 50-mark in March, after an 11-months long slump, a sign that external demand picked up. Despite this, we don’t see substantial upside for export growth in 2024. While we no longer forecast the US to fall into recession this year, we still expect the global economy to slow, which will continue to weigh on Chinese exports.
• Implications for Business – Notwithstanding Jan-Feb improvements, China’s ongoing economic woes are underpinned by deep-rooted structural imbalances that will take time to address. Looking at current market conditions and at the sum of stimulus measures announced to date, China will be hard-pressed to deliver on its growth target for 2024, leaving much room for speculation whether more substantial stimulus might be coming further down the line. For MNCs, this means uncertainty around planning assumptions will remain high this year. Readying down-market playbooks and closely aligning with HQ on how to recalibrate and finetune strategies to defend market share will therefore remain crucial.