During Chinese leader Xi Xinping’s new year’s message on Sunday, he stated, in a rare acknowledgement, that China’s economy is facing challenges and that he is committed to stepping up reforms. Meanwhile, believe analysts, a slowing economy and policy shifts will continue to hurt the world’s second-largest economy across in 2024.
Worse, after a rocky 2023, China enters the new year on a shaky ground with deep-seated structural problems that are not easy to solve, the anaysts add.
“Slowing economic growth in China and the government’s evolving policy response will continue to result in headwinds for performance over 2024 in several sectors across greater China. [And, while] the Chinese government indicated recently that policy measures next year will prioritize development, the efficacy of the measures will be instrumental to curb downside risks to economic growth, which Fitch Ratings forecasts to slow to 4.6 percent in 2024 from 5.3 percent in 2023,” wrote Lan Wang, senior director, Fitch Ratings, in a client note published on Tuesday, accessed by The Epoch Times.
A number of sectors in greater China still face challenges from slowing growth and the government’s evolving policy response, she added.
Widespread Slowdown
Global ratings agency Moody’s Investors Service, for instance, stated last month that China’s recovery has remained sluggish, held back by poor consumer and corporate confidence, a lingering housing crisis, record youth unemployment, and a global recession that is reducing demand for Chinese products.Manufacturing activity in China fell for the third consecutive month in December, and more than predicted, clouding the outlook for the country’s economic recovery and bolstering the case for additional stimulus measures in the coming year.
The official purchasing managers’ index (PMI) dipped to 49.0 in December from 49.4 the previous month, according to an official factory survey released on Sunday, falling below the 50-point threshold that separates growth from contraction and falling short of the median prediction of 49.5 in a Reuters poll.
Chinese consumers were hesitant about spending, as well, after nearly two years of lockdowns and border restrictions.
In July, China defied global trends and entered a phase of deflation, which it has yet to exit, as prices fell 0.5 percent year over year in November, according to the latest data—the largest decline in three years.
Foreign investors have been losing faith, too.
According to a report by the Financial Times, over 75 percent of foreign investments in Chinese stocks in 2023 have been withdrawn as sentiment crumbles amid concerns over the country’s growth trajectory and the impact of losses from the real estate sector.
Data gathered from Hong Kong Stock Connect, and interpreted by the Financial Times, showed that since peaking at $33 billion in August, net foreign investment in China-listed shares has dropped 87 percent, to just $4.3 billion.
In addition, a report by Business Insider stated that nearly 90 percent of foreign investment inflows into Chinese equity markets in 2023 left the country, with foreign funds selling down their China positions in response to concerns over a liquidity crisis and a lack of strong economic rebound.
However, Beijing has tried by taking a number of initiatives to avert the slowdown.
For example, early in December, China’s top leadership pledged to focus more on economic growth in 2024 during the closely watched annual Central Economic Work Conference (CEWC), which normally sets the tone for economic policies for the year ahead.
Little Impact
“[Yet] supportive policy measures since August 2023 have not turned around the challenging operating environment,” wrote Ms. Wang of Fitch, adding, “the scale, composition and effectiveness of policy support in mainland China and the degree to which they affect fiscal metrics and system leverage will be an important factor for performance in multiple mainland Chinese sectors over 2024.”Ms. Wang also believes that the slower-than-expected economic growth could have ripple effects for the performance of various sectors, including and notably, banks, leasing companies, and property developers.
According to Fitch, the lack of trust in privately owned construction companies—a consequence of the Evergrande and Country Gardens debacles—would continue the divisive trend among engineering and construction firms, with state-owned enterprises—particularly those owned by the central government—solidifying their market leadership.
Bleaker 2024
Nonetheless, while China’s economy had a roller-coaster of a year, its challenges make the outlook for 2024 even worse.This is because several events considered as possible turning points in 2023 turned out to be disappointments.
First, it was the revocation of Covid Zero, which did not end up in the anticipated comeback. Later in the year, it was the loosening of real estate restrictions which failed to prevent the property crisis from deepening.
The annual CEWC which ended last month, provided another possible turning point to reorient policy. Instead, policymakers conveyed a clear message that policy is mainly staying the course.
“The focus will likely remain on transitioning the growth model away from the property sector, while concurrently focusing on financial stability by providing swift support for local governments,” said JP Morgan in a mid-December report, accessed by The Epoch Times.
According to the global private bank, while the policy signals are more or less in line with our expectations, any big stimulus isn’t in the cards, whereas the favored growth drivers of the future are simply too small today to offset the damages already inflicted.
“The balance of Chinese policy is clearly tilting toward more support for demand, but without more forceful stimulus of old economy sectors, it’s hard to expect a major acceleration in nominal growth,” noted the bank in the report.
