Could China’s Economy Rebound from the Bottom?

Release Date : 2024-05-10

(Wo-chiang Lee, Professor, Department of Banking and Finance, Tamkang University)

Ever since 2024, there has been lost of speculations regarding the economic growth of mainland China (hereinafter referred to as the mainland), but unlike that in the previous years, western medias have not talked down the mainland’s economy unanimously. Comments predicting the collapse of China’s economy seem to collapse rhetorically. As a matter of fact, data talks but different people talk different things. 

China’s GDP in the first quarter of 2024 increased 5.3% from the previous year, with an increase of 0.1% compared to the previous quarter, indicating a good beginning of its economic performance. The primary, secondary, and tertiary sectors all showed growth with 3.3%, 6% and 5% respectively. Among the three engines that drive economic growth, consumption always accounts for the largest proportion. With the fulfillment of various measures for boosting consumption (like the 20 measures to boost domestic consumption), both commodity consumption and service consumption have increased steadily, contributing 73.7% to the economic growth, and an increase of 3.9% to the GDP.

In investment, following the acceleration of major construction projects, the investment structure has been constantly optimized, providing strong support for economic growth. During this period of time, the gross capital formation has contributed 11.8% to economic growth, and 0.6 percent to GDP. Net exports have also shaken-off the past weakness and contributed 14.5% to the economic growth in the net exports of goods and service of the first quarter, increasing 0.8 percent to GDP. Another significant indicator shows that the official Manufacturing Purchasing Managers’ Index (PMI) has rebounded above the boom-bust threshold of 50% for the first time since September last year. The service MPI of March is the highest since June last year, and another manufacturing index of Caixin and S&P Global also hit the 13-month high. Under the effect of low base period and the depreciation of Renminbi, the latest-issued figures show that both the exports and imports increase in April, better than expected. It is estimated that there will be a slight increase from Q2 to Q4 with the mild recovery of manufacturing in Europe and the US. In general, it implies China’s annual economic performance is likely to rebound and improve constantly.

It is noticeable that China’s economy is in a stage of restructuring and transformation. According to the data issued by China’s General Administration of Customs for the year of 2023, China’s foreign trade performance registered 41.76 trillion yuan (Renminbi, the same below), up 0.2 percent year-on-year. Among which, the exports of “the new three items” namely electric vehicles, lithium batteries, and solar cells batteries broke through “trillion-yuan” mark for the first time. Additionally, China’s electric-vehicle industry has attracted numerous international startups and enterprises manufacturing electric vehicle parts to invest under the support of policies and industrial competition, leading to a favorable development in the field of manufactured components of electric vehicles. And, with the rapid development of AI, various sensors, software technologies, and the strength as the leading producer of global lithium batteries, the electric-vehicle industry has risen to catch up vigorously. China has nowadays become a major manufacturer of electric vehicles and the largest consumer globally. Since 2022, the sales of domestic self-owned brand new energy vehicles have accounted for 80% of the total sales. Among which, BYD Auto has surpassed Tesla Motors as the world leading electric car seller and is in a large-scale expansion abroad, that has pushed it to the 9th best car seller of the world in the next year. It is estimated that the total car sales would exceed 31 million vehicles, with an annual increase of over 3% this year in China. And the total sales of new energy vehicles are expected to reach 11.5 million, an increase of 10.5% compared to the 9.495 million of last year.

The real estate issue that has long bothered China mostly stabilizes but it takes time to recover its prosperity though the barrage of favorable policies from the authorities. According to the data of China Residence Information Circle (CRIC), in the first quarter of this year, the accumulated volume of house sales by the top 100 real estate enterprises amounted to 779.24 billion yuan, a sharp slide of 47.5% from that of the previous year. And the sales volume of April amounted to 312.17 billion yuan, an annual decrease of 44.9% and a monthly decrease of 12.9%, still in a historical low level with single month performance, that indicates the real estate market has remained sluggish. 

The S&P, an international credit rating agency, points out that as the sales are still declining and structural factors are squeezing the developers that are under rating, the real estate market is still bottoming out. Following the defaults of large scale real estate enterprises like Evergrande Group and Country Garden company and the debt default of Zhongzhi Enterprise, Vanke issued its annual report on March 28. It shows that the net profits of last year amounted to 12.16 billion yuan, decreasing 10.53 billion yuan from 22.69 million yuan of 2022, with a decline rate of 46.4%. Vanke’s difficult situation has revealed that the “spring” of a soft landing in the real estate market has yet come and the winter of imbalance between supply and demand has not gone.  

The term “new quality productive force” was first mentioned by Xi Jinping during an inspection trip in Heilongjiang Province in September 2023. He stated “to actively develop strategic emerging industries such as new energy, new materials, advanced sectors, and electrical information, and to actively promote future industries, accelerating the formation of new quality productive force and enhancing the development of new momentum. Since then, the “new quality productive force” has been repeatedly mentioned in the Central Economic Work Conference and the 11th and 12th collective study sessions of the Central Politburo. And, it has been greatly promoted during the Two Sessions in March this year, hoping to replace the tradition industry like real estate to boost the economy.

The concept of new quality productive force is like refilling new bottles with old wine. “New” may refer to new technologies, new models, new industries, new sectors, new fields, new tracks, new drives, new strength, while “quality” consist of substance, essence, quality and excellence. It means that under the conditions of informatization and intellectualization, the new quality productive force relies on innovation and drive to fulfill high quality development and achieve high quality life through productivity. The new quality productive force actually includes the upgrading of traditional industries, and it consists of any industry that can enhance total factor productivity. Therefore, from the perspective of total factor productivity, it optimizes allocation of resources for various industries including labor, capital, land, raw materials, and technology talents. Examples are the ongoing green energy industry and emerging industry like AI technology. In a state of stagnant market, whether the industries with the concept of new quality productive force can match and fill the contributions made by real estate industry, that produces huge volume and has a long upstream and downstream industry chain, to macroeconomy and employment is worth noting.

Moreover, the Central Politburo meeting initiated “coordinating research on digesting housing inventory and optimizing policies on increasing housing property” in the end of April while all the key cities have more or less eased restrictions for home buyers. It is expected that more policy stimulus will be released to the property market which might help it rebound from the bottom. However, there are worries among the optimism. Due to trade protectionism and accelerating geopolitical conflicts that might interfere trad activities, the global economic and trade growth as a whole is not optimistic. Some analysts are also concerned that once Trump is elected, it might cause uncertainties to China’s economic development.

In summary, despite internal and external resistance and lots of uncertainties, the property crisis has seen turning point with government’s vigorous rescue efforts which have prompted the rise of stock market by 20% and the gradual flowing back of capitals, as well as a preliminary effect on structure transformation of economy and industry. In dealing with tough suppressions from the US, even with Trump’s being elected, China is experienced and has prepared countermeasures to diminish possible negative impacts. Therefore, it is believed that the economy may rebound from the bottom this year and achieve the expected growth rate of 5%.

Translated to English by Tracy Chou