China's economy entered 2024 on a stable footing, pointing to a continued robust recovery throughout the year despite pressures and challenges at home and abroad, officials and analysts said on Thursday.
While the relatively weak consumer price rise in March points to the pressures of weak demand, analysts expect China's economic conditions to continue to improve in the following months, with further policy measures expected to help expand effective investment and a consumer-focused one to support recovery.
An official from the National Development and Reform Commission, China's top economic regulator, told China Daily on Thursday that “the long-term positive trend of China's economy has not changed and will not change.” The comments came after Fitch Ratings recently changed the outlook for China's long-term default rating on foreign currency issuers to negative from stable.
The official said that China's economy still has favorable conditions and positive factors due to its powerful industrial production capacity, a complete industrial system, continuously growing innovation capability and extremely large domestic market.
“China's economy has a solid foundation, strong resilience and dynamism, and great potential and vitality,” the official said. “Looking forward, the long-term positive trend will remain unchanged.”
Lu Jiangyuan, an associate researcher at the Economic Research Institute of the Chinese Academy of Macroeconomic Research, noted that while Fitch Ratings revised China's outlook to negative, it affirmed the issuer's default rating at “A+.”
“It reflects foreign rating agencies' recognition of China's economic growth prospects, its position as a global goods trading hub and its robust external finances,” Lu said. “China’s economy continues to have robust growth prospects.”
While Fitch downgraded the outlook due to concerns about the rising government sector leverage ratio, Lu said sovereign debt risk is generally manageable. “In some ways, Fitch overestimated the pressure on China’s sovereign debt.”
The NDRC official said that “the economy has performed steadily this year” as fixed investment grew 4.2 percent year-on-year in the first two months of the year, 1.2 percentage points higher than the growth in 2023 Excluding real estate, fixed investment rose 8.9 percent in the January-February period, data from the National Bureau of Statistics showed.
China's economy is showing signs of stabilizing, with indicators such as exports, industrial production and investment improving.
Given China's better-than-expected economic performance, Morgan Stanley and Goldman Sachs have raised their forecasts for China's economic growth this year.
Morgan Stanley has revised China's forecast for real gross domestic product in 2024 from 4.2 percent to 4.8 percent. Goldman Sachs raised its forecast for China's growth this year to 5 percent from a previously expected 4.8 percent and also revised China's first-quarter GDP growth forecast to 5 percent from 4.5 percent.
In the next step, the official said China will “make full use of the leading role of government investment”, adjust and optimize the structure of investments from the central government budget, and appropriately expand the scale of investment in local government special bonds and the scale of project capital.
Data from the National Bureau of Statistics showed on Thursday that consumer prices in China rose more slowly in March while the fall in factory gate prices intensified, suggesting more policy stimulus may be needed to boost domestic demand.
The country's consumer price index, a key indicator of inflation, rose 0.1 percent year-on-year in March, cooling from February's annual rise of 0.7 percent. The producer price index, which measures ex-factory prices, fell 2.8 percent in March from a year earlier, after falling 2.7 percent in February, the NBS said.
Zhou Maohua, a researcher at China Everbright Bank, said the slower CPI growth and increasing PPI decline in March were mainly due to weak demand, the shift in the timing of Chinese New Year and the base effect.
Looking ahead to the coming months, Zhou said he expects a slight price recovery as the impact of COVID-19 subsides, a gradual return to balance between market supply and demand and more aggressive financial policies.
Meanwhile, Zhou stressed the need for further policy support to strengthen the world's second-largest economy, saying policymakers need to further consolidate the fundamentals of consumption and demand recovery while optimizing the supply-side structure.
“Efforts to reduce excess capacity in certain sectors and promote balanced domestic supply and demand dynamics are critical to promoting a sustainable economic recovery,” Zhou said.
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