Despite the imminent announcement of China’s GDP for 2024 and the implementation of broad stimulus plans and interest rates cuts since September, the economic turnaround investors had eagerly anticipated is yet to materialize. This is according to a weekly report by BlackRock Investment Institute, which also highlighted China’s existing structural challenges and the need for more fiscal stimulus to offset the economic downturn.
The report also pointed out that domestic demand in China is dwindling, fueling concerns about deflation as consumer prices in 2024 rose by a mere 0.5% after excluding unstable food and energy prices. This stands as the slowest increase in at least a decade, according to data from the Wind Information database. Yin Yong, the mayor of Beijing, also voiced his concerns about weak consumer spending, declining foreign investment, and growth pressures on certain industries.
Looking ahead to 2025, Beijing seeks to achieve 2% consumer price inflation and boost tech development. Senior economic and financial officials have hinted at fiscal support initiatives and the issuance of ultra-long bonds to stimulate consumption. However, Mi Yang, the head of JLL research for North China, warned that the forthcoming stimulus will take time to create a significant impact.
Despite these challenges, China has plans for bolstering its economy. One strategy involves issuing 150 billion yuan ($20.46 billion) in ultra-long bonds for trade-in subsidies and an equal amount for equipment upgrades. The government has already rolled out 81 billion yuan for this year’s trade-in initiative, which covers a wider range of home appliances, electric cars, and offers up to a 15% discount on smartphones priced at 6,000 yuan or less.
Meanwhile, the real estate sector, which once contributed over a quarter of China’s economy, has been hit hard by the crackdown on developers’ high debt levels, and the Covid-19 pandemic. In response, President Xi Jinping has called for measures to halt the sector’s decline, including the construction of new apartments sold ahead of completion.
Geopolitical tensions with the U.S. add another layer of complexity to China’s economic challenges. This has prompted many European businesses operating in China to localize, despite the added costs and decreased productivity, in order to retain their customer base in the country.
In conclusion, while China’s economy faces significant hurdles, the government’s strategic initiatives and stimulus plans are aimed at reviving the economy and boosting consumer confidence. However, it’s essential to note that the impacts of these measures may not be immediate and will require time to materialize.
