China's Economy: At A Crossroads In 2024

China faces a critical economic year in 2024, grappling with deflation and consumer caution amid growth challenges.

What are China's economic challenges in 2024?

China, the world's second-largest economy, is poised for a critical year as it grapples with deflationary threats and strives to revive consumer confidence. Despite surpassing its 2023 growth target with an estimated GDP increase of 5.2%, the outlook for 2024 appears more challenging.

China’s Persistent Deflation: Consumer Prices Drop For Third Month
China’s CPI continues its deflationary trend for a third month, challenging economic recovery efforts.

Consumer Caution And Economic Pressures

Kent Wong, managing director of Chow Tai Fook, indicates a consumer shift towards gold over diamonds and gemstones, reflecting a broader trend of cautious spending. This sentiment aligns with analysts' views that 2024 will be a demanding year for China's economy, facing a protracted property downturn, declining exports, and investor reluctance towards Chinese financial markets. The situation is further compounded by the longest run of deflationary pressure since the 1997-98 Asian financial crisis, as noted by Morgan Stanley analysts.

Bar Chart
China’s annual exports
Source: China Customs

The Outlook For 2024: Growth And Policy Challenges

The World Economic Forum in Davos hosted Premier Li Qiang, who announced China's GDP growth of 5.2% in 2023, slightly exceeding the 5% target. However, a Reuters poll forecasts a deceleration to 4.6% in 2024. Analysts anticipate that the National People's Congress will set a similar growth target of around 5% in early March. The government's fiscal support played a crucial role in achieving last year's target, especially when growth faltered mid-year. Hui Shan, chief China economist at Goldman Sachs, suggests that the base effect from 2022 may have inflated the GDP growth figure by about 2 percentage points.

The Property Sector And Fiscal Stimulus

2024 continues to witness the property sector's struggle, a key uncertainty for the economy. In December 2022, the central bank funneled RMB 350 billion ($49 billion) into banks through "pledged supplementary lending," likely to support housing construction. Chris Beddor, deputy director of China research at Gavekal, believes this could stabilize the sector, although property sales in major cities remain at 60% of 2019 levels. A broader fiscal stimulus targeting consumption, as suggested by Morgan Stanley’s Xing, could be vital for economic reflation.

Balancing Policy And Market Expectations

The mixed signals from policymakers, such as the People's Bank of China maintaining a key lending rate and regulatory changes in the tech sector, have added complexity to the economic landscape. Achieving a 5% GDP growth in 2024 will require strategic fiscal measures, reduced drag from the property sector, and perhaps a stroke of luck in exports. As Shan from Goldman Sachs notes, reaching this target is feasible but will demand concerted efforts and effective policy execution.


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