Chinese Economy Faces Headwinds in 2024
Chinese President Xi Jinping addressed the nation in his New Year’s message, warning his countrymen to brace for more economic challenges ahead. Acknowledging the recent string of weak economic data, he emphasized the importance of being prepared for economic fluctuations and the need to provide support for economic growth.
Xi Jinping’s somber message comes just as Chinese government data reveals new signs of weakness in the domestic economy. The manufacturing sector saw a sharp decline in activity in December, with waning domestic and foreign orders. Similarly, the services sector struggled as consumer spending tightened, indicating an overall economic slowdown.
“The next year may be another normal year,” warned Rory Green, head of Asia economics at GlobalData.TSLombard, in a report on China’s economic outlook. The cautionary words come as China’s official manufacturing purchasing managers’ index (PMI) fell to 49 in December, hovering below the 50 boom-bust line for the third consecutive month. This reflects declining new orders and a decrease in companies’ willingness to hire new employees, further intensifying concerns about economic uncertainties.
Despite initial optimism that China’s economy would regain vitality in 2023, the country experienced a series of disappointments. China’s real estate industry showed alarming signs of trouble, with significant reductions in real estate investment and a continued downturn in the housing market, which weakened consumers’ desire to spend.
In light of these challenges, several of China’s largest banks have proposed to cut deposit rates, with expectations of further lending rate reductions. However, officials have underscored the need for measured stimulus measures, reflecting their concerns about high debt levels. China currently faces internal hurdles such as a real estate downturn and external pressures from the global economy.
According to data from CRIC, the top 100 real estate companies in China reported a year-on-year decline of 16% in total sales in 2023, marking the industry’s struggles. In addition, China’s youth unemployment rate soared to over 21%, underscoring the severity of the economic situation.
The Chinese government has been deploying piecemeal stimulus strategies, opting for modest interest rate cuts and selective measures aimed at propping up economic growth. This approach reflects the leadership’s wariness of a large-scale stimulus, with President Xi Jinping expressing a preference for state-led economic development.
As China braces for the economic headwinds in 2024, President Xi Jinping pledged to focus on “Chinese-style modernization” and affirmed the government’s commitment to addressing youth employment, childcare, and pension costs. Amid the challenges, he expressed a call for creating a harmonious social atmosphere and providing comfortable living conditions for the people.
While China’s economic growth is expected to remain positive in 2023, many economists predict weaker performance for the year ahead. The International Monetary Fund (IMF) forecasts a slowdown in China’s economic growth to 4.6% in 2024, underscoring concerns about potential economic downturns. Nonetheless, the Chinese government remains vigilant in its efforts to navigate the economic challenges with a cautious yet adaptive approach.
As the Chinese economy confronts its current difficulties, the nation faces the formidable task of charting a course toward sustained growth and stability in the year ahead.