Amidst an economic slowdown largely attributed to a real estate market in turmoil, Chinese premier Li Qiang’s announcement of a 5% gross domestic product (GDP) target for 2024 on Mar 5 has drawn slightly bearish sentiment from watchful observers.
Speaking at the JP Morgan Asia-Pacific (APAC) macro conference in Singapore on the same day, Ong Sin Beng, head of the bank’s EM Asia economics research, echoes a similar view, noting that China’s present complications make achieving its target for the year a challenging one. Rather, his target is “slightly north of 4%.”
“I think there are two key headwinds in the Chinese economy that need to be resolved quickly. First, the property sector, which remains the key engine of growth, remains on a downtrend. Second, private sector confidence is still fragile. Put together, these headwinds are also weighing on private consumption as well,” says Ong.
According to Ong, the consequences of all these factors have effectively made it quite difficult work for the authorities to protect the economy, which they have tried. “And it does seem to be due to the distinct reluctance to actually do so in a way that we've seen in previous cycles, where they've effectively broken figures, both fiscal and monetary, together with regulatory changes in the real estate market, creating a very powerful concoction.”
For the year, China’s Government Work Report (GWR) has called for stronger fiscal policies to achieve its GDP target and support its economy in the coming year.
Highlights include the raising of the public budget expenditure by RMB 1.1 trillion ($209.3 billion) to RMB 28.5 trillion, with a simultaneous boost in the annual quota for local government special purpose bonds (SPBs) by RMB 100 billion to RMB 3.9 trillion.
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SPBs serve as crucial tools for Beijing to allocate funds to local governments, supporting infrastructure projects and stimulating local economies.
To this end, the JP Morgan economist is encouraged, albeit still modest in his forecast.
He explains: “The pledged supplementary lending, the injection by the Central Bank, the fiscal policy direction, all of these, if you take them, although they might not seem like a lot, but when you aggregate them, it is quite potentially quite substantial.”
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“So I would say that we could be in for a modest positive surprise, given the amount of resistance put through the system, again, it will not be of the nature we've seen in the past, but I think certainly adequate to keep things stable and not fall apart,” adds Ong.
Despite these cyclical and structural growth challenges, Chinese authorities have so far refrained from employing aggressive and broad-based policy stimulus that has been effective in previous episodes of growth slowdowns.
Ong says that, historically, the country has had a ‘close the door and switch on the tap’ approach to its economy, through various measures such as central bank liquidity injection and accelerated infrastructure spending. Currently, the focus is still on expanding the supply-side instead of boosting domestic demand.
He expands: “Now the question is, when you do something like that, which part of the equation are you lifting, are you lifting the supply side, or are you going to incorporate some of that to the demand side as well. I think what we're seeing to some degree in China is an expansion of the supply side, whereas on the demand side, in terms of addressing deflation we're not seeing significant movement there, so that's the missing element.”
In his view, Ong emphasises that private confidence and consumption has to pick up in order for the Chinese real estate market to begin to emerge from its nadir situation, even with stimulus being thrust into the end of demand.
“Nonetheless, the cumulative impact of these surgical, piecemeal easing could be stronger than expected, and we think that it will help to at least stabilise growth momentum in China this year,” opines the economist.
Overall, in spite of what experts have called an ‘ambitious’ GDP goal in what looks to be a testing year, China continues to be a market of interest for investors, says Niraj Athavle, head of sales and marketing Singapore, global clients APAC.
He concludes: “We haven't seen anyone getting downright despondent or bearish about the economy, because China's such a large economy in such a large part of the global system, that you have to be watching it, looking at it, and that continues. In fact, we continue to have clients wanting to go to China, to look at stuff that's happening. So despite what you hear, collectively speaking, nothing of that nature has changed.”
