Subsequent to the global financial crisis of 2007-09, many economists predicted that the world economy would never be the same again. Even though it would get past the disaster, the economy would recover to a “new normal”, rather than the pre-crisis status quo. As Kavan Choksi Finance Expert says, this phase was adopted by China’s leaders down the line. The term “new normal” was used to describe the high trade surpluses, cheap labour and breakneck growth of China. These new normal strategies have had a major impact on China’s economy over the years.
Kavan Choksi Finance Expert talks about what to expect from China’s economy in 2024
As the private sector investment increases from 2023’s low levels and government measures to support the economy show results, GDP growth in China is likely to pick up in 2024. Consumer spending in the nation had increased by 6.8% in the first three quarters of 2023, marking a bright spot in the economy amid weakness in real estate demand, stock prices and global trade. The second largest economy of the plant is still contending from the setbacks of the COVID-19 pandemic, among other factors. It has been significantly impacted weakness in the property sector, lowered global demand for China’s exports, high debt levels and wavering consumer confidence. The external and internal challenges faced by the country are both severe and complex. However, China does have the advantage of a vast market of 1.4 billion people and an advanced industrial base, which can help boost its economy.
The Chinese government gets a significant portion of its income from property and land. Hence, the realty market of the country would consistently put a strain on the budgets of the local government and raise debt repayment concerns, due to which a greater explicit assistance from the central government is expected in 2024. The central government is likely to continue with the restructuring of implicit local government debt in 2024. As the majority of LGFV is held by banks, a good part of the restructuring process would involve negotiations with banks for extending loan durations with lower interest rates. Another RMB 2-3 trillion of LG bonds is also expected to be issued in order to swap LGFV debt and corporate arrears. PBC may additionally continue to provide emergency liquidity faculty to heavily indebted regions.
As Kavan Choksi Finance Expert mentions, property is no longer the strong growth engine in China as it once was owing to severe downturn and much reduced long-term demand. Heavy industries and associated infrastructure investments are also likely to lose significance in the economy over time. The continuous rise in consumer services, as well as the economy’s shift to greener production and transportation (like EVs), would help partially fill the void left by traditional drivers of growth, in the meantime. These factors also include industries moving up the value chain.
The current account surplus of China is likely to decline in 2024 as outbound travel recovers. However, a modest RMB appreciation against the USD in 2024 might be supported by the US-China yield spread narrowing, along with an anticipated decline in the USD, and the stabilization of China’s economy.