Overview

• For the full year, China’s economy expanded by 5.2% – in line with our forecasts for 2023. Given the positive base effects resulting from various COVID-19 lockdowns in 2022, this was a relatively weak outcome – highlighting the softness on the demand side of China’s economy. While reports have suggested that authorities will maintain the same growth target (around 5%) for 2024, the lack of positive base effects this year, allied to the headwinds of ongoing softness in domestic demand, the property sector shakeout that appears to have some way to go, and weak global demand (negatively impacting China’s manufacturing sector) will make this target harder to reach. We expect China to grow by 4.5% in 2024 and 4.8% in 2025.
• A broad range of indicators were inflated in December due to the base effects associated with the Omicron wave of COVID-19 and the abandonment of zero-COVID policies in late 2022. China’s industrial production increased by 6.8% yoy, the strongest rate of growth since the first two months of 2022, while real fixed asset investment rose by 4.8% yoy and real retail sales by 7.4% yoy (albeit the latter slowed compared with November as this was when the base effects were largest).
• China’s trade surplus was wider once again in December – totalling US$75.3 billion (up from US$68.4 billion in November). The increased surplus reflected a stronger month-on-month increase in exports compared with imports. Exports to China’s major trading partners declined once again in December – down by 3.6% yoy – as exports to other markets, most notably Russia, have expanded more rapidly (up by 21.6% yoy).
• The People’s Bank of China (PBoC) kept its medium term lending facility (MLF) rate on hold again in January, but added additional liquidity to financial markets via this facility. Reports suggest that the central bank is debating whether to cut rates or reduce the reserve requirement ratio in coming months (the latter which would further boost funds available for lending). It is far from apparent that these supply side measures would provide a significant boost to China’s economy. There has been little shortage of funds available for lending in recent months – instead loan demand has remained weak. This is likely to continue for as long as conditions in the real estate sector remain negative and domestic demand remains constrained.

For further details, please see China’s economy at a glance (18 January 2024)