Published October 5, 2024
In January, shortly before the Chinese government set its annual growth target at 5%, I estimated that if net exports stopped declining, achieving 5% growth would require boosting investment growth to 5.3%, given a slowdown in consumption this year. To offset the expected sharp decline in real-estate investment, my calculations suggested that infrastructure investment would need to “increase significantly” – a goal that seemed within reach at the time.
But the latest data show that China’s annual consumption growth, measured by total retail sales of consumer goods, was just 3.4% in August. Spending on fixed assets, a proxy of investment growth, was similarly weak at 3.2%. Although net exports increased by roughly 8%, they account for just 2.5% of GDP, rendering their contribution negligible.
To be sure, the Chinese economy has historically experienced higher GDP growth in the final quarter of the year, and the real growth rates of the aggregates may be higher because of negative producer price index growth. But it is clear that without significant government intervention, China will struggle to reach its 5% growth target for 2024.
China’s GDP growth rate has steadily declined over the past decade, falling from 10.6% in 2010 to 6.1% in 2019 and 5.2% in 2023. China’s PPI has been in negative territory for much of this period, while the consumer price index has increased by less than 2% on average since 2012, recently falling below 1%.
It is fair to say that China’s “economic miracle” of maintaining an average annual growth rate of 10% is over. Still, I believe that with wise macroeconomic policy, market-oriented reforms, and a genuine commitment to opening up its economy, the economy should be able to maintain a solid growth rate of 5-6% for the foreseeable future.
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SOURCE: www.interezt.co.nz
RELATED: China is tackling the symptoms rather than the causes of its economic problems
Published October 5, 2024
China’s leaders are finally acknowledging the challenges the country faces after economic reports showed a steady erosion in confidence by consumers and investors. Last week, China’s central bank eased monetary policy and announced unprecedented measures to support the stock market, while the Politburo pledged to boost government spending to stabilize the property market.
Traders and investors responded enthusiastically to the announcements. The benchmark CSI 300 index had its best week since 2008, and the rally continued this week. According to Bloomberg, the stock market is now in a technical bull market, with about a 25 percent increase.
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SOURCE: www.thehill.com
