China is likely to continue to contribute roughly 30 percent of global economic expansion. — China Daily
AGAINST the backdrop of heightened geopolitical tensions, global growth sluggishness and domestic economic transformation, the recently concluded central economic work conference called for efforts to pursue progress while ensuring stability, consolidating recovery through progress and “establishing the new before abolishing the old”.
The tone-setting meeting, during which top leaders set economic targets for the following year, also encouraged the introduction of more policies that help stabilise expectations, growth and jobs.
China’s gross domestic product (GDP) growth rate is expected to surpass 5% this year, which is a considerable improvement over 3% registered in 2022. This accomplishment is seen being made in the context of a sharp dip in the nation’s real estate investment growth rate over the previous two years.
The economic drag from the property sector doldrums is expected to ease in 2024.
Consumption growth should remain stable and exports are likely to rebound from negative growth. These elements will underpin the forecast that China’s economic growth will see an improved performance next year.Long-term constraints on the global economy include structural contradictions and huge levels of government debt, which make it challenging to escape from high volatility and low growth. In contrast to other major economies, China is in a better position and will play a more crucial role in maintaining global economic stability going forward.
It is anticipated that next year will see a downturn in economic growth in developed economies – such as the United States and Japan – with growth rates likely to be less than half of China’s predicted upswing.
It is predicted that the 2024 global growth rate will drop to about 2.6%. China is therefore likely to continue to contribute roughly 30 percent of global economic expansion.
That said, China’s economic transformation is imperative, with the long-term objectives being high-quality development and structural optimisation. Because of the rapidly ageing domestic demographics, the economy’s potential growth rate may indeed shrink during this process. However, it is unlikely that China’s overall growth advantages will fade away anytime soon.
The high-profile meeting identified six specific areas of focus, which suggested a thorough and profound understanding of current and future issues.
For example, demand was identified as a high priority and is currently being categorised as “lack of effective demand”, emphasising the necessity to give social security and household income enhancement higher priority.‘Excess capacity’
Negative growth in China’s producer price index, which measures costs of goods at the factory gate, has been attributed in part to “excess capacity in certain sectors”.
In this situation, it is necessary to address low expectations and increase confidence. Monetary and fiscal policies will also be important in whetting demand appetite.
Moreover, the meeting emphasised the need to guard against systemic risks, highlighting the importance of proactive risk prevention and control measures in light of potential hazards.
In particular, risks associated with property firms, local government debt and small and medium financial institutions were deemed to be areas requiring active responses in the coming year.In order to mitigate such risks, extending the scope of special bonds for project capital purposes can produce more economic gains and boost investment momentum. This approach guarantees continued government spending while encouraging greater investment from the private sector, ultimately driving overall improvement in economic performance.
There has been a discernible downturn in the growth rate of fixed-asset investments in 2023, especially in the real estate sector. Special bonds
However, leveraging effects can be brought to the fore by using special bonds as partial funds for infrastructure projects in order to quicken the pace of investment and achieve the goal of stable investment.
China currently has a substantial debt load as a result of the accumulation of local government arrears over time. Interest payments on this debt, which constitute about 2% of total fiscal revenue, point to a comparatively high debt cost.
China’s central government does, however, have a comparatively low leverage ratio – only 21% – compared to other countries. Therefore, the government sector’s overall leverage ratio is deemed reasonable, and involved risks are manageable.
Cheaper financing
The central government can continue to provide local governments with refinancing bonds in 2024, which will lessen debt burdens by substituting cheaper financing for high-cost debt. Therefore, it is believed that risk associated with local government debt next year will not be significant.
The 20th national congress of the communist party of China has put forward the goal of establishing a modern industrial system, with technological innovation identified as the primary catalyst for its achievement.
China continues to strive to become a manufacturing powerhouse, even though it has already emerged as the world’s largest manufacturing nation, with value-added manufacturing accounting for 30% of the world’s total. — China Daily/ANN
Li XunLei is chief economist at Zhongtai Securities. The views expressed here are the writer’s own.
