Chinese leaders, who have been predicting an end to deflation, will be encouraged by this week’s official figures showing consumer prices rising. For the first time in half a year.
The news came as the ruling Communist Party used its annual gathering in Beijing to pledge that economic growth would accelerate by “about 5%” in 2024. However, in his speech, Premier Li Qiang warned his loyal representatives not to “lose sight of the worst.” -You should be prepared for case scenarios and fully prepared for all risks and challenges. ”
No wonder. Conventional economics suggests that achieving this level of growth while also achieving other goals, such as raising inflation to 3%, will not be easy.
The country’s reported GDP expansion rate of 5.2% in 2023 looks impressive when compared to other large economies; pales in comparison The average rate for the 10 years ending in 2019 was 7.3%, and for the 10 years before that it was 10.5%.
There were also few hints from Lee or other leaders during the week-long meeting about how to achieve similar growth rates in 2024. In fact, this year’s fiscal deficit was expected to shrink to 3% of GDP from 3.8% last year, but the contraction will act as a brake on growth.
Official defense spending is scheduled to increase by 7.2%, a rate unchanged from 2023. To the extent that it reflects actual military spending, this budget item also does not promote further growth.
The government has unveiled plans to sell 1 trillion yuan ($139 billion) in bonds to fund further spending. However, in an economy of about 126 trillion yuan, these bonds account for only about 0.8% of GDP.
Real estate market troubles continue
Risks to the economy are both internal and external. Much has been made of the downturn in the world’s largest real estate sector, but there are few signs of a revival.
Economists at Australian bank ANZ estimated last week that China has 3 billion square meters of unsold residential land.
If nothing else was built, “it would take 3.6 years to burn through inventories, which is much longer than the last economic downturn of 2.3 years in 2014,” said economist Raymond Yong. Xin Zaopeng said.
In fact, residential floor space sales fell 17% last year, more than 60% below the 2021 peak.
“Sales are unlikely to improve in the next few years, so the approval time will likely be longer,” Yeung and Zhaopeng said.
As long as households see the value of their major assets declining, it is unlikely that consumer confidence will recover sustainably.
Hidden statistics
China famously stopped reporting after the urban youth unemployment rate exceeded 21% in June last year. The move raised suspicions that other negative numbers would also disappear.
Renowned economic historian Adam Tooze said this week that the trend to reduce data disclosure was not new, with the number of indicators available from the Office for National Statistics having fallen to levels last seen in the 1990s. .
as @adam_tooze Notably, China’s data releases are back to levels seen in the 1990s, when the economy was just taking off, and much less sophisticated. pic.twitter.com/qpE8M6mgJq
— @phannam@mastodon.green (@p_hannam) March 13, 2024
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But international exchanges can provide a way for outsiders to measure economic health. As the world’s second-largest economy and the largest consumer of most goods, many countries have high expectations for China’s developments.
Australia is one of them, and the Chinese market exports as much as the next three or four largest markets combined. The biggest company, BHP, was immersed in what chief economist Hugh Mackay called an “unexpected rally”.
BHP said it was surprised by record demand for iron ore in 2023, despite China’s plummeting property market.
Chinese factories were able to produce 1 billion tons of steel in 2023, the fifth consecutive year. [that level for] One more year,” Mr McKay said at the AFR Business Summit in Sydney this week.
Real estate now accounts for about a quarter of China’s steel production, down from more than a third just a few years ago, he said. But some of that metal is used for China’s booming auto exports.of The country is already competing with Japan as the world’s largest car exporter. The electric vehicle industry is clearly in its infancy.
Global efforts to reduce greenhouse gas emissions similarly rely heavily on China’s relatively inexpensive solar panels, wind turbines, and batteries.
But North America and Europe are busy trying to expand these industries themselves and, like the US, are likely to erect barriers, especially with elections coming up.
Such tensions are quite separate from disputes between the United States and China over access to the latest semiconductors, mobile communications, or other technologies deemed important to the military, artificial intelligence, and other strategic industries. There is also.
If all goes according to Beijing’s plan, this time next year China could be boasting another successful year of 5% growth. However, achieving that goal appears to require at least a fair amount of luck.
