Overview

• China’s National People’s Congress in March confirmed the widely expected unchanged growth target of “around 5%” for 2024. A lack of positive base effects this year, the likely ongoing softness in domestic demand (due in part to a lack of demand-side policy support), further falls in the property sector and limited growth potential via exports will make this a very challenging goal. Our forecasts are unchanged this month – we expect China to grow by 4.5% in 2024 and 4.8% in 2025.
• A range of indicators were stronger than market expectations in the first two months of 2024 – with industrial production, fixed asset investment and retail sales (albeit only marginally for the latter) stronger than the Reuters poll. That said, volatility in early 2023, the result of the Omicron wave of COVID-19 and the abandonment of zero-COVID policies in late 2022, mean that year-on-year growth rates do not necessarily provide the clearest signal.
• While nominal fixed asset investment rose by 4.2% yoy in January-February, the real estate sector remains a constraint on growth. Investment in real estate contracted by 13.4% yoy in January-February. Residential construction starts have continued to fall – down 24.2% yoy in February – with the total floor space (in square metres) at its lowest levels since late 2005.
• China’s trade surplus narrowed somewhat across January-February, averaging US$62.6 billion (compared with US$75.3 billion in December 2023) – albeit this remains relatively high by historical standards. Exports slowed more rapidly than imports when compared with December, with these downturns being typical season patterns.
• There was some monetary policy easing in February, with the five-year Loan Prime Rate – a benchmark used to price mortgages – cut by 25 basis points to 3.95%. The one-year rate (used mainly for business lending) was left unchanged. Given the deep declines in property sector activity since the implementation of the Three Red Lines policy, a relatively modest cut to mortgage rates is unlikely to spur a recovery in the sector.
• Growth in outstanding bank lending has trended down since April 2023, indicative of weak loan demand, with financial markets having plenty of liquidity following cuts to the Reserve Requirement Ratio across 2023 and early 2024. This limited demand constrains the ability of monetary policy easing to boost economic activity.

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