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1、Chinas economy is poised to consolidate stability through progress in 2024February 2024Chinas economy hit the governments target with a 5.2%increase year-on-year(YoY)in 2023,yet the recovery remained uneven and still needs to be consolidated.The recovery of service and high-end manufacturing activit

2、ies was the main driver for growth,however,the real estate,financial industry and internet platform economy are still under pressure and will likely remain so throughout 2024.While Chinas economy will continue to face both internal and external risks and challenges,the upward recovery trajectory wil

3、l likely continue this year and further consolidate thanks to strong resilience of the economy and plenty of policy tools and rooms for the policymakers to effectively tackle downward pressure.Accelerating the development of a modern industrial system,expanding domestic demand and enhancing economic

4、 vitality will be the key tasks.Amid cyclical weakness associated with lower global demand,a proactive fiscal policy will take a leading role,with targeted measures being taken in certain sectors.The central bank will continue with a prudent monetary policy to pump out“flexible,moderate,precise and

5、effective”support to economic recovery.Preventing hidden local government debt1and diverting more financial support to technological innovation and green development will ensure a smooth transformation from old patterns to new ones in key spheres.31.P,https:/ high-end manufacturing industry continue

6、s to drive the recovery,such as the production of solar batteries,new energy vehicles and power generation equipment surged 54%,30.3%,and 28.5%YoY3,respectively.“Establishing the new before abolishing the old”4thus to ensure a smooth transformation from old drivers to new ones will be a key task for

7、 2024.Although the profit growth rate of industrial enterprises has been revived,the inventory cycle is still weak and pressure remains.The endogenous driving force of industrial enterprises needs to be strengthened,with the supply and demand side policies,such as domestic infrastructure,need to be

8、accelerated to ensure the sustainability of stable industrial growth.2.National Bureau of Statistics,https:/ Bureau of Statistics,https:/ Economic Times,https:/ economy saw steady recovery in 2023,but headwinds remain in certain sectors 4Fig 1.The national economy withstood the pressure and continue

9、d to developSource:National Bureau of StatisticsFig 2.Industrial production picked up steadily,with equipment manufacturing growing rapidlySource:National Bureau of StatisticsThe Chinese economy has secured steady growth throughout 2023,with total GDP reaching RMB126 trillion(US$17.67 trillion),up 5

10、.2%YoY2,successfully meeting the yearly target.Although the long-term fundamentals of the economy have remained unchanged and indicators for consumption,services,and industrial output show key segments of the economy have rebounded,areas such as foreign trade,private investment and property sectors

11、have lagged,casting light on unbalanced recovery,and calling out more efforts to expand the domestic demand in 2024.3.33-0.842.040.193.005.324.654.161.290.270.793.921.562.071.091.200.180.981.07-1.22-0.06-1.09-0.84-0.16(2)(1)0123456782022-032022-062022-092022-122023-032023-062023-092023-12Three drive

12、rs of GDP growthConsumptionInvestmentNet exportspercentage point,YoY%Stable industrial expansion due to improving market demand.Chinas industrial production growth up 4.6%YoY in 2023,and in December alone,the figure grew 6.8%YoY from the previous year.(20)(10)0102030405060702021-032021-042021-052021

13、-062021-072021-082021-092021-102021-112021-122022-022022-032022-042022-052022-062022-072022-082022-092022-102022-112022-122023-022023-032023-042023-052023-062023-072023-082023-092023-102023-112023-12Industrial output overall and key segments cumulative YoY growth rate%Overall industrial outputManufa

14、cturingAutomobileElectronic components and mechanical equipment manufacturing5While the overall FAI(fixed-asset investment)has been moderating,targeted investment in high-end manufacturing continued to post double-digit growth.In 2023,the electrical machinery and automotive manufacturing investment

15、led the growth with a 32.2%YoY and 19.4%YoY increase.Infrastructure continued with a stable investment of 8.2%YoY5.Real estate remained the main drag,with property investment by developers in December fell YoY at the fastest pace since the year 2000.5.National Bureau of Statistics,https:/ 3.The grow

16、th rate of FAI was relatively stable,led by expansion in equipment manufacturing and the high-tech industry(20)(10)010203040506070FAI overall and key segments cumulative YoY growth rate%Overall FAIHigh-TechOverall ManufacturingAutomotive manufacturingElectrical machinery and equipment manufacturingR

17、eal estateInfrastructureThe recent series of policies is likely to help property sales growth in the coming months,but at the same time,consolidation pressure in the sector will remain.Chinas ambition for technological self-reliance is poised to accelerate investments further in high-technology and

18、related products,some of which are in the green economy space(e.g.,new energy vehicles,and renewable energy).Source:National Bureau of StatisticsConsumption is showing positive indications,with a clear pattern shift from primarily goods-oriented spending to a mix of goods and services.The total reta

19、il sales climbed 7.2%YoY in 2023,reaching RMB47.15 trillion(US$6.63 trillion)6.Although cautious sentiment on purchasing big-tickets items persisted,encouraging developments continue to emerge in new segments such as livestream commerce,cultural tourism and China-chic products.Its worth noting that

20、Chinese consumers have become more rational and sought balance between quality and value of the products post pandemic.Businesses are challenged to demonstrate a deeper understanding of consumer needs,not only in the material aspect but also in cultural and psychological perspectives too.Providing p

21、ersonalized products and creating a sense of participation have become just as essential as ensuring high product quality for brands to gain consumer confidence and enrich the consumer experience.6.National Bureau of Statistics,https:/ 5.Promoting service consumption is a key strategy for increasing

22、 domestic demand and elevating new consumption patterns(20)(10)0102030405060708090Total retail sales of consumer goods-cumulative YoY growth rate%Total retail sales of consumer goodsOnline retail sales of physical GoodsCatering revenueSource:National Bureau of StatisticsFig 4.Consumer confidence has

23、 been restored in 2023,however,more efforts are called out to further unleash consumption potential63%64%65%66%67%68%69%70%71%2017201820192020202120222023The proportion of per capita consumption expenditure of residents to per capita disposable income(%)Source:National Bureau of Statistics67Although

24、 the overall 2023 export growth eased compared with that of the previous years,the total export value of Chinas new tech-intensive green trio,namely solar batteries,lithium-ion batteries and electric vehicles,surged 29.9%YoY to RMB1.06 trillion in 20237,with the figure topping the one-trillion-yuan

25、mark for the first time.Import remains weak as the pressure of domestic demand persists.More policy is expected to expand the domestic demand over the short term.Meanwhile,the structural change is accelerating in Chinas foreign trade.Data shows that China continues to import large amounts of commodi

26、ties and agricultural products but much less of high-tech intermediate goods and high-tech final goods,which indicates value chain upgrading and technology self-sufficiency.7.General Administration of Customs,https:/ 6.Foreign trade showed resilience in the face of a complex international landscapeO

27、n the external side,the lower-end manufacturing exports from China is significantly declining,such as textile and other lower-end manufacturing products have been gradually relocated to other regions in Southeast Asia,India,etc.While high-end exports,such as new energy vehicles,photovoltaics is ramp

28、ing up,global industrial chain restructuring and heightening geopolitical tensions will likely continue to weigh on the export and supply chain.Executives will need to better navigate through the changing markets,enhance risk monitoring and utilize scenario planning for both short-term and medium-te

29、rm investments.Source:National Bureau of Statistics(20)(10)0102030405060Foreign trade-cumulative YoY growth rate%ExportImportIn 2024,further consolidating the economic recovery will be the main task,while tackling risk and accelerating high-quality developmentStrengthening counter-cyclical and cross

30、-cyclical adjustments of macro policies to promote stability through progressThe Central Economic Work Conference in December 2023 pointed out that to further stabilize the economy,China must still overcome some difficulties and challenges,domestically,including lack of effective demand,overcapacity

31、 in some sectors,lackluster social expectations,certain risks and hidden challenges and blockages in domestic circulation8.China will stick to a proactive fiscal policy and a prudent monetary policy to strengthen counter-cyclical adjustment and shore up market expectations.Moderately strengthened fi

32、scal spending will be directed at“high-quality”infrastructure,with a focus on urban housing upgrading,social housing construction,and a further loosening in local home-buying restrictions.On the monetary side,though the strength of easing may not exceed the previous year,moderate cuts in the reserve

33、 requirement ratio(RRR)and interest rates are expected to elevate consumption confidence and corporates investment willingness amid subdued inflation environments.Fig 7.Government bond issuance is likely to remain robust6Source:The Peoples Bank of China8.2023 Central Economic Work Conference,https:/

34、 growth(%YoY)Total social financingCorporate bondsGovernment bondsNew RMB loansStabilizing the real estate sector while managing financial risks Optimizing financial services has been positioned as a top priority for the next five years,according to the 2023 Central Financial Work Conference.An incr

35、ease of financial resources will be diverted to technological innovation,advanced manufacturing,green development and small and medium-size enterprise(SMEs).While accelerating financial innovation and development,comprehensively strengthening the capital supervision and risks prevention are also imp

36、ortant,particularly in the housing market and local government debt.Improving macro-prudential management of real estate financing and meeting the reasonable financing needs of real estate enterprises of different ownerships without discrimination will be the key.A new government debt management mec

37、hanism will be established and more local government financing vehicle(LGFV)debt will likely be restructured and further tightened.At the same time,financial opening-up will be steadily expanded to improve cross-border investment and attract long-term capital development.Accelerating investment and

38、innovation to improve resilience and sustainable growth Although significant challenges remain,China is accelerating notable progress in advancing new industrialization,with more investment and favored policy expected in innovative and green segments such as solar cells,new-energy vehicles and indus

39、trial control computers and systems.Resources optimization and supervision will continue in high-tech sectors(i.e.,AI,advanced semiconductors,and quantum information technologies).Green transformation is becoming the new form of growth.By the end of 2023,the green debt in both domestic and foreign c

40、urrencies have reached RMB30.08 trillion(a YoY increase of 36.5%)10,mainly investing in sectors such as transportation,warehousing,and supply of electricity,heat,gas,and water.Increasing financial support for corporate carbon reduction investment projects is key to achieving the dual carbon goals.Th

41、is requires a comprehensive green financial system with joint efforts from the central bank,financial regulatory departments and financial institutions.Traditional banking will take a lead,while non-banking institutions will also see unlimited potential.Expanding domestic demand and accelerating dig

42、italization to support consumers evolving preference Chinas consumption rebound,following an initially uneven first quarter of 2023,is now evolving into a more sustainable phase.While the consumption infrastructure and environment need to be improved,other internal dynamics are also important,includ

43、ing encompassing broader job creation,enhancing employment prospects for residents,rising income levels.Thanks to new tech such as avatars and artificial intelligence(AI),livestream e-commerce shopping has delivered a remarkable surge in sales,with a 19%YoY growth during last Novembers Singles Day s

44、hopping festival,while sales via traditional e-commerce dropped by 1%9.The web and other digital tech evolutions will continue to penetrate the consumer sector and accelerate market demand for advances in mobile technology and digital solutions.99.Starmap,https:/ 10.The Peoples Bank of China,https:/

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