Signs of upswing seen for 2024 as experts urge measures to promote services sector, supply chain

A worker assembles a guitar on Jan 4, 2024 at a musical instrument manufacturing factory in Zaozhuang, Shandong province. (SUN ZHONGZHE / FOR CHINA DAILY)

China’s economy is on track for a solid year with strengthening recovery momentum, fueled by reviving consumer spending, services activity, and export growth, said global financial institutions and senior experts.

However, the outlook could be vulnerable to the significant challenges of a lingering property downturn and lagging demand, they warned, underscoring the pressing need for and the rising possibility of more easing in macroeconomic policies.

Anticipated measures include interest rate cuts, possibly as early as this month, fiscal expansion of the central government, and fresh funding support for real estate developers, they added.

Wang Tao, chief China economist at UBS Investment Bank, said on Jan 9 that China’s economic momentum is expected to further stabilize and recover this year, thanks to reviving consumer spending as the services sector and labor market further recover from the impact of COVID-19.

Exports are also likely to pick up amid improving global demand for electronics and technology products, Wang said, adding that real estate development investment may stabilize and pick up in the second half of the year.

“If the property sector cannot be stabilized and it further slides, housing prices will see deeper corrections, which will worsen household confidence. This could be the biggest economic downside risk this year,” she said.

China’s economic activity picked up in November as export growth turned positive, while retail sales, services activity, and industrial output accelerated. However, the property sector remained weak, with real estate development investment down 9.4 percent year-on-year in the first 11 months of 2023.

Yao Wei, chief economist and head of research for Asia-Pacific at Societe Generale, said that policymakers should provide real estate developers with more funding support to help address their debt stress. Assuming more policy relaxations in the housing sector, stepped-up fiscal support, and further monetary easing moves, the Chinese economy could achieve a stable growth of 4.5 percent this year, Yao said.

December’s tone-setting Central Economic Work Conference decided to ensure stable and sound development of the real estate market and strengthen macroeconomic adjustments as part of the efforts to consolidate and promote the positive momentum of economic recovery.

Lu Ting, chief China economist at Nomura, said the People’s Bank of China (PBOC), the country’s central bank, is highly likely to cut benchmark lending rates on Jan 8, when the PBOC injects liquidity via the medium-term lending facility.

Zou Lan, head of the PBOC’s monetary policy department, told Xinhua News Agency that the central bank will use a comprehensive set of tools, including the medium-term lending facility and banks’ required reserves, to provide solid support for social financing and credit expansion.

Li Daokui, head of the Academic Center for Chinese Economic Practice and Thinking at Tsinghua University, said that China is expected to achieve around 5 percent growth in 2024 and reverse the economic slowdown seen in more than 10 years, “under the premise that the government adjusts and implements policies in a timely manner”.

It is time for policymakers to adopt a more proactive stance so that macroeconomic policies effectively prevent noneconomic policies from causing any restrictions on economic activity, Li said at the 46th Tsinghua University Forum of China and the World Economy, hosted by the think tank.

At the same forum, Xu Gao, chief economist at BOC International, said that tepid demand remains the biggest challenge for the Chinese economy amid the lingering property downturn, suggesting that the central government should take on more debt to fund infrastructure investment and shore up demand.

Elsewhere, experts have said that despite the persistent challenges posed by a slump in the property sector and its impact on domestic demand, they expect a notable economic upswing in China in 2024, fueled by a gradual recovery in services consumption and investment.

They said the government should promptly introduce policies that tap into the vitality of the services sector, such as further advancing the opening-up of the services sector, refining service supply, and encouraging consumption of services.

Their comments came as a private survey released on Jan 4 showed that China’s services activity in December expanded at the fastest pace in five months, indicating that economic recovery is gaining further momentum.

The Caixin China General Services Purchasing Managers’ Index increased to 52.9 in December from 51.5 in November, media group Caixin said. A PMI reading of above 50 points to expansion, while one below that mark indicates contraction.

Caixin’s composite PMI, which includes both manufacturing and services activities, came in at 52.6 in December from 51.6 in the previous month, recording the highest level since May.

“The latest figures signal the continued economic recovery trend, especially with the services sector gradually regaining vitality after COVID-19 disruptions,” said Hong Yong, an associate research fellow at the Chinese Academy of International Trade and Economic Cooperation’s e-commerce research institute. “The services sector has become a crucial force bolstering the growth of the world’s second-largest economy.”

Expanding service consumption is an essential means of supporting economic growth, said Hong, adding that service consumption and investment are expected to become new growth engines.

Data from the National Bureau of Statistics showed that retail sales of services in China grew by 19.5 percent year-on-year in the first 11 months of 2023, outpacing the 7.2 percent growth in retail sales of products during the same period. Investment in high-tech services jumped 10.6 percent in the first 11 months of last year, significantly higher than the 2.9 percent growth in fixed-asset investment, data showed.

Hong called for further steps to boost the development in services consumption and investment, including ramping up efforts for further opening-up of the services sector, improving service standards, and enhancing service supply.

Wang Peng, an associate researcher at the Beijing Academy of Social Sciences, said he believes that expanding domestic demand and stimulating consumption will be key priorities among the nation’s economic tasks this year.

“It is advisable for the government to take measures such as raising income levels, improving the consumption environment, and strengthening the protection of consumer rights,” Wang said.

The tone-setting Central Economic Work Conference, which was held in Beijing last month, called for efforts to stimulate consumption and expand productive investment to create a virtuous cycle of mutual promotion between consumption and investment.

Lin Xianping, secretary-general of Hangzhou City University’s cultural and creative research institute, said the country should take more steps to tackle issues related to employment and boost new types of consumption.

Bai Wenxi, vice-chairman of the China Enterprise Capital Union, said that China’s economy will likely register steady growth this year, given the continuing economic recovery trend, improved consumer sentiment, and stronger policy support.

Gary Rosen, CEO of the China division of Accor, a French hospitality group, said that China is expected to become the world’s biggest tourism market and he expects increasing growth opportunities in the market.

“China is moving closer to becoming the world’s biggest tourism market by 2035,” Rosen said. He added that people have continued to act on their pent-up demand for travel after COVID-19.

Experts also said China will retain its position as a key global manufacturing hub, as the supply chain diversification moves by certain multinational companies are gradual and limited only to low-end sectors.

Their comments echoed a recent report by Fitch Ratings, which said moves to relocate production away from China amid rising trade barriers and geopolitical tensions remain limited to sectors involving low-skill assembly and mass production.

China’s share of global manufacturing output has continued to grow despite the supply-chain shift, the report said. It cited data that showed the country’s share of global manufacturing output reached around 30 percent in 2022, compared with 28.5 percent in 2018 and 22.3 percent in 2012.

Zhao Zhongxiu, president of the University of International Business and Economics, said: “Some manufacturing companies are moving factories out of China, implementing the so-called China-plus strategy. But that is just part of the picture.”

“China is strengthening efforts to move up global value chains while further stabilizing foreign direct investment. No global company can ignore a market as big as China,” Zhao said.

Ge Shunqi, a professor at Nankai University’s Institute of International Economics, said he believes it is natural that some companies in labor-intensive industries are relocating production away from China as the country upgrades industry structure and moves up global value chains, just like they came to China decades ago to produce and then export those products.

He also said the country can encourage Chinese enterprises, private ones in particular, to take the “going global” approach, because their increased presence overseas will strengthen China’s ties with global markets, therefore building up the country’s strength in global industrial and value chains.

David Lynne, head of corporate banking at Deutsche Bank, said that China will remain a significant destination for FDI, and several large multinationals are planning to or are already expanding their manufacturing capability within the country to supply the Chinese market.

Shi Jing in Shanghai contributed to this story.

Contact the writers at zhoulanxv@chinadaily.com.cn