According to a survey of Chinese economists compiled by Nihon Keizai Shimbun and Nikkei QUICK News, the average forecast for China’s real gross domestic product (GDP) from April to June is 5.1% year-on-year. Consumption growth is weak due to the real estate downturn, and it is expected to shrink from 5.3% in January to March.
From the GDP growth rate forecast, the highest is 5.6% and the lowest is 4.2%. The month-on-month growth rate adjusted for seasonal factors is expected to be 0.8%. It is slower than January to March (1.6%).
Many opinions are wary of the downside risks of the Chinese economy. Matthew Roger of LGIM believes that the direction of the economy will be “stable or downward.” This is because as the real estate downturn continues, countermeasures such as the policy of local governments to purchase inventory housing are difficult to see results.
In China, demand for consumption and other purposes is declining due to the decline in housing prices, which has led to a decline in household assets. Matthew Roger pointed out that this pattern will become a burden on economic growth in the long run, saying that “the government attaches importance to security and support for technological competition, and cannot depict sustained growth driven by domestic demand.”
The method of using overseas demand to make up for the lack of domestic demand has also begun to show flaws. Overseas orders have decreased, and the manufacturing purchasing managers’ index (PMI) fell to 49.5 in June, falling below the boom-bust line of 50 for two consecutive months. The intensification of trade frictions with Europe and the United States has become a headwind.
The United States and the European Union (EU) have successively imposed additional tariffs on Chinese pure electric vehicles (EVs). Yao Wei of Societe Generale pointed out that this means that China’s growth model of selling low-priced products to the world is unsustainable.
If former President Trump returns to politics in the US election in November, Sino-US trade frictions may further intensify. Trump has declared that tariffs of more than 60% will be imposed on goods imported from China.
Hideki Ito of Mizuho Bank pointed out that if tariffs are widespread, “reduced exports to the United States will shrink China’s domestic production and investment.” He pointed out that if China also retaliates with tariffs on imports from the United States, “rising domestic prices may reduce consumption and investment.”
The average GDP growth forecast for the whole year of 2024 is 4.9%. This is 0.2 percentage points higher than the previous survey in March. The GDP growth rate from January to March benefited from the increase in export-oriented production and official-led investment, which was significantly higher than market expectations.
Jeremy Zook of Fitch Ratings believes that “fiscal expansion through the issuance of government bonds will support the economy in the second half of the year.” China began issuing ultra-long-term government bonds with a maturity of more than 10 years in May, and plans to issue a total of 1 trillion yuan this year.
Private enterprises remain cautious about active investments such as factory construction and hiring new employees. The government has supported the economy by alleviating insufficient domestic demand through investment in public infrastructure.
Market stakeholders will pay attention to the Third Plenary Session of the 20th Central Committee (Third Plenary Session) held from July 15 to 18. This is an important meeting to discuss medium- and long-term economic policy guidelines. Hu Weijun of Macquarie Group believes that there may be calls to boost the economy at the meeting, but no specific policies can be expected. This cold view is eye-catching.
Tetsuji Sano of Sumitomo Mitsui DS Asset Management expressed concern that “if the pattern of favoring state-owned enterprises and eliminating private enterprises is determined, the vitality of the economy will decline.”
Tetsuji Sano believes that there are problems with China’s policy-making methods, and measures led by officials who are not familiar with the economy continue, and the risk of trying to achieve goals through strengthening supervision is increasing.
In the survey, the outlook for the loan market benchmark rate (LPR, loan prime rate), which is positioned as a de facto benchmark interest rate, was also asked. The one-year term, which serves as a reference for loan interest rates for high-quality companies, is expected to fall to 3.35% by the end of 2024, 0.1% lower than the recent level.
Although domestic demand is insufficient, the forecast rate cut is only small because China is aware of the risk of RMB depreciation. The interest rate cut by the Federal Reserve (FRB) is still far away. On the other hand, if China turns to interest rate cuts, the interest rate gap between China and the United States will widen, which may exacerbate RMB depreciation and capital outflows. The RMB exchange rate against the US dollar is forecast to be 7.23 yuan per dollar at the end of 2024. It has depreciated slightly from 7.08 yuan in the last survey.
The average economic growth rate forecast for 2025 and 2026 is 4.5% and 4.3% respectively, and the deceleration trend is expected to continue. China’s population peaked in 2021 and then turned to decline, and structural headwinds have intensified. Wu Zhuoyin of Natixis said that the problem of insufficient demand, including consumption, is likely to be amplified by the deterioration of population dynamics.