China will continue to slow without clear growth drivers, top analyst says

• Shehzad Qazi told CNBC that China’s growth in 2024 will further slow as no sector can spark an economic recovery.
• The country typically relies on the real estate market, but real estate is unlikely to return as a major driver of GDP.
• However, the market may see some improvement in the third quarter as support measures have some effect.

China’s Beige Book managing director told CNBC that China’s slowdown will deepen next year as no sector in the country can lead a broad recovery.

“The reality is that right now there is no clear growth engine in China for the next few years,” Shehzad Qazi said in an interview on Thursday. “So overall growth will continue to slow. I think 2024 will be slower than 2023.”

Parts of the economy may provide support, but investors cannot expect “champion” industries to lead China. For example, continued demand in overseas markets may help sustain manufacturing, but it is not at a level that could reverse this year’s steep decline.

Until now, China’s large real estate market has long been the main driver, accounting for almost 70% of total household assets and about a quarter of China’s GDP.

However, high debt burdens and a spate of defaults are hurting the sector. The extent of the crisis was most recently revealed when prominent developer Country Garden defaulted on bond payments, sparking a race for investors to exit.

Mr. Kazi emphasized that real estate prices are currently at record lows, saying, “Real estate will never return to being the major driver of GDP and economic growth that it once was.”

Investors may hope for some improvement in the first half of next year as support measures such as lower mortgage rates begin to have some effect. However, it is unrealistic to expect the Chinese government to provide a full-scale rescue of the real estate sector as authorities seek to avoid re-inflating the real estate bubble.

Qazi’s forecast is shared by institutions such as the World Bank and the International Monetary Fund, both of which expect China’s GDP to slow further next year. The IMF predicts the country’s growth rate will fall to 4.6% in 2024 from 5.4% this year.

In his view, investors were disappointed this year by overestimating China’s recovery after the country’s coronavirus lockdown measures ended. Although the country saw some organic recovery through the second and third quarters, it lost momentum again, he said.