Fitch Ratings Agency remarked on Wednesday that its outlook for China in 2024 is neutral, but the country will still face headwinds from waning foreign demand, a challenging real estate sector, and local government debt concerns. The agency projected an average GDP growth of 4.6% compared to just over 5% in 2023, adding that it expects growth in China to be largely stable and on average higher than its peers.
Chinese government advisers told Reuters they would recommend economic growth targets for 2024 ranging between 4.5% and 5.5%, with most preferring a target of 5% — the same as this year’s growth level. Fitch mentioned that debt issued through local government financing vehicles— typically investment companies that raise funds and build infrastructure projects on behalf of local governments— could continue to shift gradually onto the sovereign balance sheet due to pressures from a slowing property market in the country.
Fitch maintained China’s credit rating at “A+” with a “stable” outlook in August. Last week, Moody’s Investors Service downgraded its outlook on the Chinese government’s credit rating from stable to negative, citing a slowdown in medium-term economic growth and risks associated with the country’s large real estate sector downturn.
Meanwhile, The Economist magazine questioned China’s ability to overcome its economic challenges in 2024, exploring shifts in the country’s growth trajectory. The report mentioned that China adapted to the “new normal” following the global financial crisis, moving away from rapid growth and large trade surpluses it was accustomed to. However, Beijing is facing structural weaknesses potentially impacting growth, raising concerns about resetting growth objectives.
As China’s leadership prepares for the Communist Party’s Central Economic Work Conference to determine the growth target for 2024, experts expect growth under 5%, sparking debate over whether to accept a new balance or to aim for faster growth. This balance includes considering the evolution of the real estate market that is shifting from speculative demand to fundamental demand, impacting future sales, according to the magazine.
The Economist adds that despite a belief in a saturated real estate sector, valuations indicate a potential opportunity for market growth due to varying standards related to individuals’ living space. Initiatives such as renewing village areas and the edges of urban zones could help property developers.
However, downturns in the real estate market reveal financial challenges for local governments, necessitating a comprehensive reassessment of their fiscal policies to prevent defaults. With the property sector in decline, discussions arise about alternative sectors that could drive growth, such as electric vehicles, renewable energy, and lithium-ion batteries. These industries contribute modestly to the GDP compared to real estate, as outlined by the magazine.
The Economist points out that industry transitions might affect labor markets, potentially influencing consumer spending and recalling the impacts of the COVID-19 pandemic on consumer behavior, which reflected on spending patterns and saving rates. The failure to stimulate demand could lead to negative inflation, adversely affecting businesses and consumers. The magazine warns against complacency with the new normal, as it does not offer satisfactory growth rates, which China may currently face if growth challenges persist.
In closing, The Economist mentions that Beijing is facing critical decisions regarding growth targets amidst structural economic shifts and challenges such as the real estate market, fiscal policies, industry transitions, and stimulating demand—described as decisive challenges in determining China’s economic path beyond 2024.
