China's real estate development investment fell 9.6 percent last year, with total area under construction falling 1.5 percent and total sales falling 6.5 percent to 11.66 trillion yuan.
Value added in the real estate sector accounted for 5.8 percent of national GDP last year – a one-year low, according to government figures.
“China is experiencing a two-pronged recovery,” Yu Xiangrong, Citigroup’s chief economist for Greater China, said at a webinar this month.
And he suggests that the contributions of three new powerhouses – technological innovation, advanced manufacturing and modernized infrastructure – could be similar to those of the real estate sector. But for the shift to a new growth model to occur, both the supply and demand sides would have to deal with “deep, profound changes and disruptions,” he warns.
The race of political measures against weak dynamics
Beijing has stuck to an easing policy, but no “bazooka-style” economic stimulus is expected for 2024.
The authorities have implemented a number of policy support measures since last summer. including an action plan for private and foreign investors, followed by the approval of special government bonds worth 1 trillion yuan in October. However, these measures have not yet led to sustainable growth dynamics.
According to the National Bureau of Statistics (NBS), sequential economic growth slowed to 1 percent in the fourth quarter of 2023 from 1.5 percent in the third quarter.
Despite local authorities' efforts to give their respective economies a strong economic start, many analysts expected a gradual easing approach due to debt and risk considerations.
“Policy is slowly moving in this direction and will continue to converge,” wrote Rory Green, an economist at market research firm TS Lombard. “There will be no bazooka, but there will be a steady increase in bond issuances and PSL (pledged additional loans) throughout the year.”
The [Chinese] The economy cannot afford several years of a crisis of confidenceXu Tianchen, The Economist Intelligence Unit
The economy's race against dwindling trust
Beijing has talked a lot about supporting private companies and welcoming foreign investors – the latest comments coming days ago from Prime Minister Li Qiang at the World Economic Forum in Davos, Switzerland.
However, the latest NBS data suggests that private investment fell by 0.4 percent last year. According to trade authorities, China's foreign direct investment (FDI) totaled 1.1 trillion yuan in 2023, down 8 percent from the previous year. Foreign direct investment in the manufacturing sector fell by 1.8 percent, while direct investment in the services sector fell by 13.4 percent.
Analysts have warned that the government needs to be more transparent in its messaging and more assertive in its actions.
“The [Chinese] The economy cannot afford several years of a confidence crisis,” said Xu Tianchen, senior economist at the Economist Intelligence Unit.
The Delay of the Third Plenuman opportunity for the Communist Party leadership to address the country's long-term economic problems raised concerns about China's political direction.
For the economy to flourish, China must clearly articulate and articulate the role of the private sector
The debt burden falls on local authorities and developers
Local governments across the country are now burdened with debt – a situation made worse amid falling tax revenues and declining land sales in China's first year of post-pandemic recovery.
According to the Ministry of Finance, confirmed local debt stood at 40.6 trillion yuan at the end of November, up 16 percent year-on-year.
The total debt size is now Local government financing instruments According to Mizuho Securities Asia, the value was between 55 and 65 trillion yuan in the third quarter of last year.
The developers are now in survival mode, waiting for government funding to pull them out of the financial doldrums. A JPMorgan report in December said about 50 mainland developers have defaulted on about $100 billion worth of offshore bonds in the last two years.
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China's GDP: Beijing's long to-do list to boost its economy in 2024
China's GDP: Beijing's long to-do list to boost its economy in 2024
Fears of deflation must deter support
China's consumer price index fell 0.3 percent year-on-year in December, marking its third consecutive monthly decline. Upstream deflationary pressures are more pronounced as the producer price index fell for the 15th consecutive month in December, falling 2.7 percent year-on-year. Fears that China could fall into crisis are increasing Japan-like spiral of stagnation.
The deflationary pressures highlight the persistent problem of inadequate domestic demand, which has been exacerbated by falling export orders.
Yao Yang, director of Peking University's National School of Development, said deflationary pressures – despite monetary easing – meant the problem of insufficient demand remained severe, coupled with an imbalance between supply and demand.
The economist has called for demand-side reforms such as direct subsidies to consumers to boost demand, which “has seen almost no growth in the last three years,” he told a seminar in Guangzhou last week.
Risk reduction will accelerate
Speaking at a high-level financial conference On Tuesday, President Xi Jinping said China faces urgent tasks in its efforts to manage various financial risks and called on regulators to clarify their responsibilities and join the country's de-risking campaign.
“Financial regulation has to have teeth,” he said. “All localities must plan the overall situation based on a region and carry out risk management and stability maintenance.”
Preventing and managing such financial risks is an “eternal issue” for the central government, Two-a-Decade comments say. Central Financial Working Conference End of October.
The restructuring brings China's $58 trillion in financial assets firmly under the party's purview
The demographic problems are getting worse
According to the United Nations, the number of births in China fell 5.6 percent to an all-time low of 9 million in 2023, after the country had already lost the title of the world's most populous country to India.
Meanwhile, about 11 million Chinese died in 2023, pushing the mortality rate to its highest in five decades.
The decline in birth rates has worsened even though Beijing has effectively scrapped all contraceptive requirements in recent years and given prenatal support to couples to start larger families.
The knock-on effects of a shrinking population that is aging rapidly have long-touted consequences for the country The demographic dividend has declined. And this is expected to have far-reaching effects on labor supply, consumption, Social Security benefits and economic growth prospects in the coming years.
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