Concerns for China's economic trajectory despite green shoots

Recent economic indicators have raised concerns over the trajectory of the Chinese economy despite some green shoots, as persistent challenges stemming from inadequate demand and property market issues cast a shadow over growth prospects, according to economists.

In response to these challenges, they called for additional stimulus measures to reignite demand and address structural issues within the economy. Policymakers are urged to consider targeted measures aimed at bolstering consumer spending, incentivizing investment, and addressing the imbalances within the property market.

Looking ahead, economists said the Chinese economy is likely to return on track by the end of this year if pivotal problems on real estate, local government debt and consumption can be well addressed.

Their comments came after data from the National Bureau of Statistics showed on Saturday that industrial enterprises with annual revenue of at least 20 million yuan ($2.8 million) saw their total profits increase 4.3 percent year-on-year in the first quarter after a 10.2 percent rise in the first two months. Profits fell 3.5 percent year-on-year in March.

NBS statistician Yu Weining said the latest data points to an uneven recovery in industrial profits, and the recovery foundation is not yet solid.

More efforts will be made to encourage a new round of large-scale equipment renewal and trade-in of old consumer goods, expanding domestic demand and boosting market confidence, Yu said.

"The latest profit data indicate insufficient demand and weakening expectations," said Xiong Yuan, chief economist at Guosheng Securities.

By industry, Xiong noted that profits improved significantly in March in sectors related to exports and external demands, such as chemical fibers, non-ferrous metal smelting, and telecommunication electronics. Meanwhile, profits continued to plummet substantially in sectors related to real estate and domestic demand, such as ferrous metal smelting, non-metallic mineral products, furniture manufacturing, textile and apparel, and non-metallic mining.

Robin Xing, chief China economist at Morgan Stanley, said while exports will remain a primary positive factor for China's growth in 2024 given the rebound in global demand, especially US demand, the broader economy is still facing pressure from insufficient domestic demand, lackluster consumer sentiment and weakness in the property sector.

He said, "Policymakers should increase fiscal spending in fields such as healthcare, education and the social security system, which will help restore consumer confidence and further unleash their consumption potential."

Li Daokui, director of the Academic Center for Chinese Economic Practice and Thinking at Tsinghua University said that the country's current economic predicament lies in that the economy is "operating below its potential growth speed," thus leading to subdued market demand and expectations from both companies and residents.

"To relieve the problem, real estate problems must be alleviated. The authorities should work at a fast pace, just like that of during the financial crisis period, to help developers to deal with financial shortages, including offering sufficient loans," said Li, who is also editor in-chief of The Journal of Government and Economics.

Meanwhile, he advocated for a "complete lifting" of house purchase restrictions across the country, barring only a few top-tier cities with limited housing supply, to unleash housing demand.

On the other hand, Li said that many local governments have engaged in large-scale construction over the past decade or two and have borrowed a significant amount of money. "The central government can extend such a debt payment to 50, 60, or even 70 years and set a lower interest rate. If the burden on local governments cannot be lightened, our economic vitality will not recover," he said.

In addition to long-term efforts, Li pointed out that more "substantial" financial support should be given to consumers to boost their confidence for bold consumption in the short term. "The subsidy is, for example, if consumers buy a computer, they can get a 10 percent rebate from the government, and the manufacturers can grant another percentage of subsidy."

More efforts should also be made to address the concerns of ordinary people, including new urban residents and families with newborns, Li added.

ouyangshijia@chinadaily.com.cn