Written by Joe Cash
BEIJING (Reuters) – Analysts say China’s $18.6 trillion economy has hedged some of its short-term downside risks, as recent indicators suggest, and officials say it will continue to grow in 2024. It has bought more time to convince investors that it can start a new growth engine for 2020 and the coming years.
Economic data from January to February and a survey of factory owners in March show that the world has failed to achieve a sustainable recovery after the Chinese government recently abandoned strict coronavirus containment measures. It reassured Chinese policymakers who are trying to convince foreign investors that the second-largest economy can be reignited. 2022.
But analysts and investors are cautious. Things may not be getting any worse, but unless authorities can find a way to fire on all cylinders again, a market once seen as a powerhouse of global growth will stall later this year.
Although China has taken a series of measures to revitalize its economy,
This includes guiding banks to increase lending to high-end manufacturing.
Aimed at reducing the amount banks have to hold in reserves instead of real estate, these policy tools are becoming less effective and could even be scaled back.
“China is trying to make 2024 normal,” said Alicia García Herrero, chief economist for Asia Pacific at Natixis. “There is,” he said.
“But China cannot grow any more than it did last year, and it never will because the fiscal costs of growth beyond 2023 will be enormous,” he added. “China’s growth model is not sustainable.”
China’s factory output and retail sales beat expectations in January-February, coupled with better-than-expected exports and consumer inflation indicators, boosting gross domestic product (GDP) growth in what analysts describe as ambitious in 2024 This was an early boost to Beijing’s hopes of achieving its 5.0% target. .
Citi on Thursday raised its forecast for China’s economic growth this year to 5.0% from 4.6%, citing “recent positive data and policy outcomes.”
But China is “facing a crossroads” and needs to “reinvent itself for a new era of high-quality growth,” International Monetary Fund Managing Director Kristalina Georgieva said at a meeting in Beijing last week. Speaking at the International Investment Summit.
In January, the IMF revised its forecast upward by 0.4 percentage points to 4.6%, citing increased government spending, but it remains below last year’s actual expansion of 5.2%.
Officials are pinning their faith on “new productivity.” The term was coined by Chinese President Xi Jinping in September to emphasize the need for economic development based on innovation in advanced sectors.
Still, analysts question whether China can sustain growth and transform its economy at the same time.
“China is barely keeping up with its slowing growth rate, so (the data) is not a ‘green shoot’,” García Herrero said.
“5.2% is at the top, not at the bottom,” she added.
Rhodium Group estimates that the actual growth rate in 2023 will be around 1.5%, rather than the government’s official figure, due to the slump in the real estate market, restrictions on personal consumption, declining trade surpluses, and deteriorating local government finances. There is.
“Looking forward, China could recover cyclically, perhaps to a growth rate of 3.0% to 3.5% in 2024,” a New York-based research group known for reporting on China predicted in December. .
property issues
Officials are confident that China will achieve its growth target of about 5% this year.
But investors are wondering about the government’s plans to limit the damage the long-running debt crisis in the real estate sector is doing to growth, and how Beijing is slowing down domestic consumption to keep Washington and Brussels at bay, which are considering measures. We are looking for more detailed information on how to expand the . Chinese export products.
“China is off the map, and it’s something they’re only just beginning to address,” said Roger Creamers, assistant professor of China studies at Leiden University.
Analysts said the recent upturn in statistics was due to government injections of money into the economy and a sharp rise in consumer prices and retail sales data, which were boosted by the Lunar New Year, which fell in February this year.
“Given near-term tailwinds from stimulus, growth should remain healthy in the near term,” Jichun Fan, China economist at Capital Economics, said in a note. “However, structural headwinds are likely to cause the economy to slow again once policy support is reduced, perhaps later this year.”
China’s real estate sector, which once accounted for 25% of the economy, has become particularly large.
The decline in real estate investment and property sales slowed further in the first two months of this year, helped by government efforts to stem a long-term slump in the real estate industry, but analysts still say it could spell disaster for the economy. I’m concerned about the possibility.
“[The authorities]are basically putting out fires at this point to keep the economy on track,” said Frederick Newman, chief Asia economist at HSBC in Hong Kong.
“However, there is a long-term question of what will drive future growth once the real estate sector subsides.”
(Reporting by Joe Cash; Editing by Muralikumar Anantharaman)
