Opinion | How to read China’s economic report card for the first 5 months of 2024 | South China Morning Post
25 Jun 2024
As the first half of 2024 comes to an end, the state of China’s economic recovery is a mixed bag of joy and concern. The positive aspect is that multiple economic indicators show a significantly better growth trend compared to the same period last year. However, what is worrisome is that consumers, investors and entrepreneurs still lack confidence in the economic outlook.
Traditionally, three of the leading drivers behind China’s economic growth have been consumption, investment and exports. Economic indicators related to these factors in the first five months of the year have shown a clear improvement compared to 2023.
Overall investment has been recovering at a slower pace but, if we excluded real estate, the situation is clearer. In the first five months, national fixed asset investment grew 4 per cent year on year, but the modest rate is mainly due to a 10.1 per cent decline in real estate investment. In 2021, this sector accounted for nearly 27 per cent of total fixed-asset investment, declining to 22 per cent in 2023.
If we exclude real estate development investment, national fixed asset investment grew by 8.6 per cent in the first five months, exceeding gross domestic product (GDP) growth. This indicates that, excluding real estate, fixed asset investment has already recovered to pre-pandemic levels.
Second, in the first five months, the import and export of goods increased by 6.3 per cent in yuan terms, with exports growing by 11.2 per cent in May. This indicates the recovery of the global economy has boosted demand for Chinese products.
However, tariffs on Chinese products imposed by the United States and the European Union may pose challenges in the future. Additionally, former US president Donald Trump warned that if he is reelected, he would raise tariffs on all imported products from China to 60 per cent.
Third, the recovery of consumption, which has contributed most to GDP growth in recent years, seems to be falling short of market expectations. For example, in the first five months, the total retail sales of consumer goods increased by 4.1 per cent year on year. In May, it grew by only 3.7 per cent.
The reason may be that the higher growth rate from last year makes this year’s growth rate appear lower. In the first half of 2023, retail sales of consumer goods grew by 8.2 per cent, with a full-year growth of 7.2 per cent.
The data indicates that, overall, China’s economy is undergoing a comprehensive recovery. So why do consumers, investors and entrepreneurs remain less confident about the economic outlook?
First, the continued adjustment in the real estate market has had a wide-ranging impact. In previous years, Chinese households and institutions were enthusiastic about real estate investment. The decline of property prices directly affects the value of household and institutional wealth.
Around 70 per cent of gross household wealth in China comes from real estate. With shrinking household wealth, it is difficult for consumption to rebound to pre-pandemic levels.
Second, the stock market has been in a prolonged slump. In 2022 – the year Covid-19 affected the Chinese economy the most – the wealth of the top 100 billionaires on the Forbes China Rich List shrank by nearly 40 per cent. In 2023, their wealth continued to decline, albeit by a significantly narrower margin. A lot of that wealth is tied to the stock market and property.
Since both real estate and stock market valuations are struggling to reverse declines, China urgently needs to implement significant reforms to break the impasse. The third plenary session of the 20th Communist Party Central Committee, scheduled for July, is expected to bring structural reforms.
Although there are still some short-term difficulties, the long-term positive development trend of China’s economy remains unchanged, especially with more Chinese companies becoming global industry leaders. Despite the slowdown in the growth rate in recent years, Chinese business has continued to perform.
I recently had the privilege of accompanying Dr Francesca Cornelli, dean of the Kellogg School of Management, on visits to BYD and Mindray in Shenzhen. These two technology- and innovation-driven companies have become global players in their respective industries in a few decades, which fills me with confidence in the future of China’s economy.
G. Bin Zhao is founding chairman of the Global CEO Institute