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Mint Primer: China’s growth target: Should we be worried?
Summary
- China’s enviable growth rates of over 10% in the early 2000s and over 7% a decade ago look like a distant dream as its post-pandemic recovery vaulted form bad to sluggish
CHENNAI : By Chinese standards, the 5% economic growth projected for 2024 seems rather modest. But such is the state of its economy that most analysts do not expect it to meet even this target. Mint looks at China’s economic woes and what it portends for the global economy.
Why is China’s growth forecast so low?
The government’s projected economic growth rate of 5% for 2024 is almost the same as 2023 when its GDP grew by 5.2%. China’s enviable growth rates of over 10% in the early 2000s and over 7% a decade ago look like a distant dream as its post-pandemic recovery vaulted form bad to sluggish. Domestic demand is weak as consumer confidence is low. Exports are under pressure as countries wean away from too much dependence on China. Manufacturing has been shrinking for months. The country is facing deflationary pressures as consumer and producer prices have dropped sharply.
And even this target is seen as aspirational?
Yes. Analysts expected some form of stimulus to revive growth but this never happened. Premier Li Qiang admitted “the foundation for China’s sustained economic recovery and growth is not solid enough", but didn’t offer any significant sops to boost demand. Experts say “ultra-long" Special Treasury Bonds (to fund important projects), relaxing the fiscal deficit by 1% and a scheme to encourage households to trade in old goods for new are modest fiscal measures that are insufficient to accelerate the present pace of economic growth. The World Bank estimates China’s 2024 economic growth at just 4.5%.
Why is China not jump- starting its economy?
In a word: debt. Not just the central government, China’s local governments too are debt-ridden. This limits any scope for debt-fuelled growth. The risk of a stimulus is worse than the risk of inaction is the thinking. The way Western nations are now battling inflation after massive public spending to fight the pandemic has only solidified this view.
How deep is China’s economic woe?
It is quite bad. The industry is sitting on huge overcapacity as demand has fallen. Joblessness has risen, especially among the youth. Consumer confidence remains moribund, at levels seen during the pandemic. The property crisis is in its third year and there is no sign of it being resolved. Many of its trading partners are turning hostile and foreign investment into China is at a 30-year low. Geo-political tensions add to the problem. China’s stock market has lost $4 trillion in value since its peak in 2021.
What’s the impact on global growth?
The International Monetary Fund’s latest World Economic Outlook pegs the 2024 global economic growth at 3.1%. This is significantly lower than 2000-2019 average of 3.8% and this is mainly due to the Chinese slowdown. China and India, in 2024, are expected to account for half of global growth. A war-weary world, navigating an era of high interest rates, will be hoping China will succeed in efforts to refocus the economy away from external demand while also veering away from an excessive real estate focus.
