Economy on stable footing, experts say

Published: April 14,2024

By Ouyang Shijia

A view of Beijing’s CBD area on Aug 19, 2022. [Photo/VCG]

China’s economy has started 2024 on a stable footing, indicating a sustained trajectory of robust recovery throughout the year, despite pressures and challenges both at home and abroad, officials and analysts said on Thursday.

While the relatively weak consumer price rises in March point to pressure from lackluster demand, analysts said they believe that China’s economic conditions would continue to improve in the following months with more policy measures expected to help expand effective investment and bolster a consumer-led recovery.

An official of the National Development and Reform Commission, China’s top economic regulator, told China Daily on Thursday that “the long-term positive trend of the Chinese economy has not changed and will not change”. The remarks came after Fitch Ratings recently revised the outlook on China’s long-term foreign-currency issuer default rating to negative from stable.

The official said that China’s economy still enjoys favorable conditions and positive factors, given its powerful industrial production capacity, a complete industrial system, continuously strengthening innovation capabilities and its ultra-large domestic market.

“China’s economy enjoys a solid foundation, strong resilience and dynamism, and great potential and vitality,” the official said. “Looking ahead, its long-term positive trend will remain unchanged.”

Lu Jiangyuan, an associate researcher at the Chinese Academy of Macroeconomic Research’s Economic Research Institute, noted that while Fitch Ratings revised the outlook on China to negative, it affirmed the issuer default rating at “A+”.

“It reflects the recognition of foreign rating agencies for China’s economic growth prospects, its position as a global goods trading center, and its robust external finances,” Lu said. “China’s economy still possesses robust growth prospects.”

While Fitch downgraded the outlook due to concerns over the rising leverage ratio of the government sector, Lu said the government debt risk is generally controllable. “To some extent, Fitch has overestimated China’s government debt pressure.”

The NDRC official said that “the economy performed stably this year”, as fixed-asset investment jumped 4.2 percent year-on-year in the first two months of the year, 1.2 percentage points higher than the growth in 2023. Barring real estate, fixed-asset investment grew 8.9 percent during the January-February period, data from the National Bureau of Statistics showed.

China’s economy is showing signs of stabilization, with improvement in indicators such as exports, industrial production and investment.

Given China’s better-than-expected economic performance, Morgan Stanley and Goldman Sachs have both raised their outlook for China’s economic growth this year.

Morgan Stanley has revised China’s 2024 real gross domestic product forecast from 4.2 percent to 4.8 percent. Goldman Sachs raised its forecast for China’s growth this year to 5 percent from the 4.8 percent earlier expected, and it also revised China’s first-quarter GDP growth forecast from 4.5 percent to 5 percent.

In the next step, the official said China will “give full play to the guiding role of government investment”, adjust and optimize the structure of investment from the central government budget and appropriately expand the scope of investment in local government special bonds and the scope of the project capital.

Data from the National Bureau of Statistics showed on Thursday that China’s consumer prices rose at a slower pace in March while the decline in factory gate prices widened, suggesting that more policy stimulus may be needed to boost domestic demand.

The country’s consumer price index, a main gauge of inflation, rose by 0.1 percent year-on-year in March, cooling from the 0.7 percent annual gain in February. The producer price index, which gauges factory-gate prices, dropped by 2.8 percent from a year ago in March, following a 2.7 percent fall in February, the NBS said.

Zhou Maohua, a researcher at China Everbright Bank, said the slower CPI growth and widening PPI decline in March came mainly due to lackluster demand, the shift in the timing of the Chinese New Year and the base effect.

Looking ahead to the following months, Zhou said he expects to see a mild price rebound with the waning COVID-19 impact, gradually getting back to a balance between market supply and demand and more aggressive fiscal policies.

Meanwhile, Zhou underscored the need for more policy support to bolster the world’s second-largest economy, saying policymakers need to further consolidate the foundations of consumption and demand recovery while optimizing the supply-side structure.

“Efforts to reduce overcapacity in certain sectors and promote a balanced domestic supply and demand dynamic are crucial for fostering a sustained economic recovery,” Zhou said.

China Daily