Chinese efforts to stave off economic slowdown to continue in 2024

In recent months, China has employed a wide variety of measures to stimulate economic growth (BOFIT Weekly 44/2023). Most of these measures have been modest and are only beginning to have an impact. For example, industrial output and retail sales in November perked up a bit from October. Improved on-year growth in many branches, however, partly reflects the low basis last year when China was still struggling with widespread covid infections and covid restrictions were still in place. Fixed investment remained weak in November. Despite the fact that many of the government’s support measures were directed at the construction sector, declines continued for many indicators, including new building starts, investment and apartment sales. In December, the cities of Beijing and Shanghai announced that they were further reducing the downpayment requirement for apartment purchases and cutting the profit tax on apartment sales. GDP growth is still expected to slightly exceed 5 % this year.

China’s economy is expected to continue slowing next year. The economy is no longer getting the same boost from the initial post-pandemic recovery as last year and structural factors continue to depress growth (BOFIT Forecast for China 2023–2025). The outlook for exports is weak as growth of the global economy should remain low and the tense relations with the West persist. Despite a battery of economic measures in recent months, the contraction of the real estate sector appears unlikely to end anytime soon. The central government announced it will issue an additional 1 trillion yuan in bonds to finance a range of projects for various purposes, such as repairing flood damage. It is not clear, however, whether the fiscal policy will be more supportive in general. Local governments are highly indebted and they may have to rebalance their budgets.

Key Chinese decision-makers met in Beijing on December 11–12 for the annual Central Economic Work Conference to decide next year’s areas of policy focus. While the 2024 economic growth target has yet to be announced, most observers expect it to be the same “about 5 %” target as this year. Economic themes of previous years continue to be highlighted, including maintaining stability, strengthening domestic demand, supporting technological development, as well as enhancement of national security. This year’s plan notably includes calls for strengthening economy-related propaganda, intervening in inter-provincial protectionism and designing reforms for public-sector finances. The government has also targeted alleviation of problems related to the real estate sector, local government indebtedness and small and medium-sized financial institutions.

China’s debt-to-GDP ratio continues to climb.

Sources: BIS, Macrobond and BOFIT.