25 Jan 2024
We anticipate a soft landing for property in 2024; social
housing to offset weakness in the broader real estate market
Fiscal policy will lead the way; enhanced coordination
between policymakers to smooth structural transitions
As we enter 2024, China’s economy will require strong policy support, led by fiscal measures, to keep traditional growth engines, such as housing and infrastructure, ticking over, while helping new growth areas to accelerate. This approach will help to sustain consumption momentum into the coming quarters. We highlight five macro themes that will support GDP growth in 2024.
Our base case is for a soft landing for China’s housing market in 2024. The new dual-track policy model – which aims to supply more social housing, while facilitating healthy development of the commercial real estate sector – should absorb oversupply and help the broader property sector rebalance. Policymakers have also shown their willingness to support the housing market, as reflected by the RMB350bn injection of financing last December.
Consumption has been the driving force of the economic recovery, contributing c80% of GDP growth in 2023; we expect this robust growth to continue in 2024. The stabilisation of the housing market should boost consumer confidence, while the country’s recent move to prioritise social welfare has the potential to further unleash consumer spending. We believe resilient consumption will continue to drive more than two-thirds of the growth in GDP.
China has ramped up policy support since 4Q23, with one particularly positive development being the emphasis on better policy coordination. Fiscal policies will lead the way, with the central government playing a bigger role, which we think represents a major shift in strategy. Furthermore, the broadly defined fiscal deficit may reach c8%, similar to 2023 levels, while the central bank will likely further cut the reserve requirement ratio to keep liquidity ample.
Despite promising developments in the “new economy”, especially on the electric vehicle front, we think the scale is still too small to offset the slowdown of the old growth engines, such as manufacturing, infrastructure and property. However, growing support for property and local governments will allow the old engines to tick over, leaving room for the new drivers, like electric vehicles, lithium batteries and solar cells, to flourish, backed by favourable policies.
Although China’s GDP deflator stayed in contractionary territory for most of 2023, we are cautiously optimistic that it can turn positive in 2024. Volatile components like food have weighed on consumer price index (CPI) inflation but should be less of a drag in 2024. Commodity prices also face upside risks against a backdrop of heightened geopolitical tensions and the potential stabilisation of the domestic housing market.
1. This report is dated as at 19 January 2024.
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