China’s real estate development investment decreased by 9.6% last year, the total area under construction decreased by 1.5%, and total sales decreased by 6.5% to 11.66 trillion yuan.
Value added in the real estate sector accounted for 5.8% of the country’s GDP last year, the lowest in years, according to government data.
“China is experiencing a hyperbolic recovery,” Yu Xiangrong, chief economist for Greater China at Citigroup, said in a webinar this month.
And he suggests that the contributions of the three new powerhouses – technological innovation, advanced manufacturing and modernized infrastructure – could nearly match that of the real estate sector. However, he warns that for the shift to a new growth model to occur, both the supply and demand sides will have to contend with “deep and profound changes and transition pains”.
Competing policy responses to weak momentum
Although the Chinese government remains accommodative, no “bazooka” stimulus is expected in 2024.
Economic growth subsequently slowed to 1% in the fourth quarter of 2023 from 1.5% in the third quarter of 2023, according to the National Bureau of Statistics (NBS).
While local governments are trying to get their economies off to a strong start, many analysts had expected a gradual easing approach given debt and risks.
“Policy is moving slowly in this direction and will continue to inch closer,” said Rory Green, an economist at market research firm TS Lombard. “There will be no bazookas, but there will be a steady drip of increased bond issuance and PSLs (promised supplemental financing) that will build up throughout the year.”
of [Chinese] The economy cannot survive a confidence crisis that lasts for years.
Business competition with wavering confidence
However, according to the latest data from NBS, private investment fell by 0.4% last year. Meanwhile, according to the Ministry of Commerce, China’s foreign direct investment (FDI) totaled 1.1 trillion yuan in 2023, down 8% from the previous year. FDI into manufacturing fell by 1.8%, and FDI into services fell by 13.4%.
Analysts warn that governments need to be more transparent in their messages and more aggressive in their actions.
” [Chinese] “The economy cannot afford a crisis of confidence that continues for years,” said Xu Tiancheng, senior economist at the Economist Intelligence Unit.
To make the economy prosper, China needs to ‘clarify and drive home’ the role of the private sector
To make the economy prosper, China needs to ‘clarify and drive home’ the role of the private sector
Debt burden weighs heavily on local governments and developers
Local governments across the country are currently struggling with debt, but the situation has worsened as tax revenues have fallen and land sales have declined in the first year of China’s post-pandemic economic recovery.
According to the Ministry of Finance, confirmed local debt reached 40.6 trillion yuan as of the end of November, an increase of 16% from a year ago.
Developers are currently in survival mode, waiting for government funding to pull them out of the financial slump. About 50 mainland developers have defaulted on about $100 billion worth of offshore bonds over the past two years, according to a December report from JPMorgan.
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China’s GDP: Beijing’s long to-do list for economic growth in 2024
China’s GDP: Beijing’s long to-do list for economic growth in 2024
Concerns about deflation must scare away support.
Deflationary pressures highlight the deep-rooted problem of insufficient domestic demand due to a decline in export orders.
Yao Yang, director of Peking University’s National Development Academy, said that despite monetary easing, deflationary pressures, combined with the imbalance between demand and supply, mean that the problem of insufficient demand remains serious. Stated.
The economist said at a seminar in Guangzhou last week that he is calling for demand-side reforms, including direct subsidies to consumers, to boost demand that has seen “nearly zero growth over the past three years.”
Risk avoidance accelerates
“Financial regulation must have teeth,” he said. “All regions should plan the overall situation based on one region and practice risk management and maintaining stability.”
Reorganization brings China’s US$58 trillion of financial assets firmly under Party control
Reorganization brings China’s US$58 trillion of financial assets firmly under Party control
Demographic predicament intensifies
Births in China, which has already lost its place as the world’s most populous country to India, have fallen by 5.6% to a record low of 9 million in 2023, according to United Nations data.
Meanwhile, approximately 11 million Chinese people will die in 2023, the death rate reaching its highest level in 50 years.
The decline in births has worsened even though the Chinese government has effectively abolished all birth control rules in recent years and offered prenatal assistance to couples raising large families.