All obstacles to China’s economic growth
For 2024, China has again set an economic growth target "at around 5 percent". From the real estate crisis to geopolitics, here are all the difficulties that Beijing finds itself facing. The focus of Agi
China set its economic growth target at “around 5%” this year, an identical target to the one announced for 2023 and which for the world's second largest economy was already one of the least ambitious in the last three decades .
In 2023, the Asian giant's GDP had officially increased by 5.2%, the lowest rate since the 1990s (excluding the Covid period), but still considered overestimated by many economists. Here are the main difficulties that Beijing must face to raise its head again.
THE REAL ESTATE CRISIS
The real estate sector, which has experienced two decades of meteoric growth as the population's living standards have risen, has long accounted for more than a quarter of China's GDP. But the sector is now under pressure, with some developers on the brink of bankruptcy and falling prices dissuading Chinese from investing in real estate, all against a backdrop of economic slowdown.
To try to revive activity, the authorities multiply reassuring announcements and incentive measures. The Central Bank notably reduced the key reference rate for real estate loans, a measure intended to encourage households to take out loans on favorable terms. China has also published a list of construction sites that are eligible for financial support as a guarantee, although housing is often paid for before it is even built. Despite everything, “the real estate sector shows no signs of recovery,” observes analyst Ting Lu of Nomura bank.
CONSUMPTION AT THE POLE
High youth unemployment (15% at the end of 2023 according to adjusted official data) and uncertainties related to the economic situation are weakening consumption, the traditional driver of the Dragon's economy. These difficulties have plunged China into deflation for four months, with the sharpest contraction in consumer prices in 14 years in January.
Due to the lack of demand, companies are forced to reduce production and apply new discounts to sell off inventories, which weighs on their profitability and employment. To stimulate activity, President Xi Jinping has recommended in particular the renewal of consumer goods, a measure that leaves economists skeptical.
“To revive the economy, we must increase the wealth and income of families,” estimate analysts from the Trivium company, specialized in the Chinese economy. “Chinese leaders are clearly not yet ready to do so,” they complain in a statement.
GEOPOLITICAL TENSIONS
For China, often defined as the "workshop of the world", exports represent an important growth lever. Last year they recorded their first contraction since 2016 as global demand weakened by inflation. Geopolitical tensions with the United States also explain this trend: Trade between the two major economies declined for the first time since 2019. In contrast, trade ties between China and Russia reached a record high in 2023, thanks to a rapprochement occurred after the war in Ukraine. But Moscow is far from compensating for American demand and especially that of the European Union, which represent China's two main outlets.
UNCERTAINTY AND PESSIMISM
“Foreign investors are pessimistic due to the absence of a recovery plan and solid fiscal measures,” notes SinoInsider, a US-based company specializing in the Chinese economy. Proof of this is the 82% fall in foreign investments in China last year, according to official data, which brought them to the lowest level since 1993, underlines SinoInsider.
This gloomy sentiment has repercussions on Chinese stock markets, which have generally been following a downward trend for many months. Government intervention through a sovereign fund has recently made it possible to reverse the trend. The authorities will continue "to support the markets at least until the end of the parliamentary session" in mid-March, warns SinoInsider, which however questions the sustainability of this measure.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/cina-ostacoli-crescita-economica-2024/ on Tue, 05 Mar 2024 13:24:02 +0000.