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Premier Li Qiang announced at the World Economic Forum in Davos that China's economy grew by about 5.2% in 2023, slightly exceeding the official target of 5% set by the Beijing government.[1] This growth, while an improvement over the 3% recorded in 2022, represents one of the slowest rates in China since the 1990s. The country has been grappling with various economic challenges, including a real estate crisis, high youth unemployment, deflationary pressures, and a rapidly aging population.
Premier Li attempted to reassure international investors about China's economic prospects, stating that investing in the Chinese market is an opportunity rather than a risk. He pointed out the momentum for consumption, driven by the approximately 400 million people in the middle-income group, a number expected to double to 800 million in the next 10 years. Urbanization is anticipated to create substantial demand in sectors such as housing, education, medical care, and elderly care.
Despite Premier Li's positive outlook, there has been a significant exodus of investors from Chinese markets, with the country's stock markets experiencing notable losses in 2023. The CSI 300 index fell over 11% and Hong Kong's Hang Seng was down 14%, contrasting with the MSCI World index, which closed the year 22% higher.*
Source: https://www.investing.com/indices/csi300*
Source: https://www.investing.com/indices/hang-sen-40*
Source: https://www.investing.com/indices/msci-world-stock*
Premier Li emphasized China's commitment to maintaining an open business environment, despite growing scrutiny and a decline in foreign direct investment. However, calls for increased transparency and improved data reporting persist, as accurate economic statistics are crucial for effective governance, investment decision-making, and attracting multinational companies. The importance of reliable economic data becomes even more pronounced as emerging economies like China and India play a central role in the global economic landscape.
Major international investment banks, including Goldman Sachs and Morgan Stanley, predict a slower pace of economic growth for China in 2024 compared to 2023. The average forecast from these banks anticipates a 4.6% increase in real GDP for 2024, down from the 5.2% growth reported for 2023.[2]
Among the forecasts, JPMorgan had the highest at 4.9%, while Morgan Stanley had the lowest at 4.2%. Analysts emphasize the need to manage downside risks, particularly from the correction in the housing market. Factors such as deflation pressure, insufficient domestic demand, and the impact of the housing market on growth are highlighted. Despite growth in sectors like tourism and electric cars, China's economy did not rebound as quickly as expected in 2023.
Goldman Sachs analysts noted that China deviated from the expected script in 2023, leading to a rare decision by Beijing to increase the official fiscal deficit in October. The International Monetary Fund (IMF) raised its 2023 growth forecast to 5.4% but still expects a slowdown in 2024 to 4.6%, citing weaknesses in the property market and subdued external demand.[3] The IMF also highlighted the need for reforms to address significant growth declines.
Chinese premier stated that the country did not resort to massive stimulus and did not seek short-term growth at the expense of long-term risks. Analysts anticipate a further slowdown in China's economy in the long term, with UBS projecting annual GDP growth to slow to around 3.5% in the years following 2025 due to factors like the housing slump. However, there is still growth potential in China, particularly in urbanization, manufacturing, services, and renewable energy, according to UBS analysts. Even at 3% to 4%, China's growth pace remains faster than that of developed economies, such as the United States, which the IMF forecasts to slow to 1.5% growth in 2024.[4]
Sources:
https://edition.cnn.com/2024/01/16/business/china-economy-li-qiang-davos-intl-hnk/index.html
https://www.ft.com/content/187e4183-8e7c-44f3-88c0-444aa0594791
* Past performance is no guarantee of future results.
[1,2,3,4] Forward-looking statements are based on assumptions and current expectations, which may be inaccurate, or based on the current economic environment which is subject to change. Such statements are not guaranteeing of future performance. They involve risks and other uncertainties which are difficult to predict. Results could differ materially from those expressed or implied in any forward-looking statements.
Warning! This marketing material is not and should not be construed as investment advice. Past performance data is not a guarantee of future results. Investing in foreign currency may affect results due to fluctuations. All securities transactions may result in both gains and losses. Forward-looking statements represent assumptions and current expectations that may not be accurate or are based on the current economic environment, which may change. These statements are not guarantee of future results. CAPITAL MARKETS, o.c.p., a.s. is an entity regulated by the National Bank of Slovakia.
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