The role of China’s economy in the world is fairly substantial. It accounts for approximately 10% of world trade and stock market capitalization, around 18% of GDP (at market exchange rates), as well as around 16% of world oil demand. Kavan Choksi Wealth Advisor points out that recently Chinese Premier Li Qiang announced an ambitious 2024 economic growth target of around 5%. He underlined that constructive steps would be undertaken to transform the development model of the country, as well as defuse risks fuelled by bankrupt property developers and indebted cities.

Kavan Choksi Wealth Advisor sheds insight into the condition of China’s economy

While China’s 2024 growth target is set at around 5%, same as last year, this target is likely to be harder to reach as a post-COVID recovery is losing steam. Beijing, on the other hand, signals that it is prioritizing growth over any reforms. The uneven growth experienced by China in 2023 laid bare the deep structural imbalances of the nation, starting from increasingly lower returns on investment to weak household consumption. These trends promoted calls for a new growth model.

China started the year off with a stock market rout as well as deflation at levels unseen since the global financial crisis of 2008-09. As the local government debt woes and property crisis persists, an increasing level of pressure is been put on the leaders of China to come up with new economic policies.

Certain economists have drawn comparisons between the fading of China’s economic miracle to Japan’s lost decades since the 1990s, and called for pro-market reforms and measures to boost consumer incomes. Chinese Premier Li had mentioned that it is imperative to not lose sight of worst-case scenarios, and push ahead with transforming the growth model, with the aim of making structural adjustments, improving quality, and improving performance.

The International Monetary Fund projects China’s 2024 growth at 4.6%, declining towards 3.5% in 2028.  There is rhetorical support for local government debt and the property sector. However, how these steps are applied in practice is also vital. China has plans to run a budget deficit of 3% of economic output, down from a revised 3.8% last year. It also plans to issue 1 trillion yuan ($139 billion) in special ultra-long term treasury bonds, which are not included in the budget. Versus 3.8 trillion yuan in 2023, the special bond issuance quota for local governments was set at 3.9 trillion yuan in 2024. Kavan Choksi Wealth Advisor additionally mentions that China also set the consumer inflation target at 3% and aims to create over 12 million urban jobs this year, while keeping the unemployment rate at around 5.5%. The country is quite unlikely to do bazooka-style stimulus. At the moment, there still is a good deal of constraints in regard to how China can support the economy via fiscal expenditure.

Budgetary plans of the country included an increase in defense spending by 7.2% in 2024, similar to 2023. This is a figure closely watched by the U.S. and China’s neighbors, who are wary about its strategic intentions as tensions rise over Taiwan.