Viewing China's economy from a rational perspective
China will soon release a set of data reflecting the impact of incremental policies applied since late September. So where is the Chinese economy truly headed and are there reasons to feel positive?
Greetings and welcome to the latest edition of PekingEnsight! We're thrilled to have you join us once again as we navigate the ever-evolving landscape of the Chinese economy.
Analysts are divided in predicting China's economic prospects, as there is only less than one quarter left for the country to meet this year's growth target of around five percent.
In the first three quarters of 2024, China's GDP expanded 4.8 percent year on year, while growth rates fell from 5.3 percent in the first quarter to 4.7 percent in the second quarter and then 4.6 percent in the third quarter.
Certain sectors, such as real estate and consumer spending, reported disappointing figures, while the decline in September's export data has led to speculation that foreign trade may be weakening.
This week's edition of Peking Ensight features a conversation with Dong Yu, executive vice president of the China Institute for Development Planning at Tsinghua University.
Dong is an economic expert who has been advocating a dialectical approach in terms of the interpretation of economic data and who is opposed to relying solely on isolated statistics to assess the overall economic trajectory.
Dong previously worked at the National Development and Reform Commission and the Office of the Central Financial and Economic Affairs Commission, and was a key participant in the formulation of China's recent Five-Year Plans.
"When analyzing economic data, it's essential to focus on marginal changes that reveal underlying trends." -- Dong Yu
While real estate investment has indeed declined, fixed asset investment, excluding the property sector, grew by 7.7 percent year on year in the first three quarters of 2024.
As for exports, the summer of 2024 was marked by frequent natural disasters that significantly disrupted economic operations. The fluctuation seen in September's export data is closely related to disruptions at ports in regions like Shanghai and Guangdong, due to typhoons. This means that the September fluctuation does not necessarily indicate a fundamental shift in exports.
On a quarterly basis, China's GDP grew 0.9 percent in the third quarter of 2024, accelerating from the 0.5-percent rise recorded in the second quarter. Meanwhile, the growth in industrial output rebounded in September after four months of decline.
On the consumption front, the strengthening of a trade-in policy in the third quarter led to a 51 percent increase in new energy vehicle sales and a 20.5 percent rise in home appliance sales in September. Data from the National Day holiday period also showed a notable jump in consumer activity, with tourism revenue growing faster than the number of travelers.
In terms of investment, high-tech and advanced manufacturing sectors maintained relatively fast expansion in the first three quarters.
Innovation indicators also showed promising results, as integrated circuit production and exports rose by 26 percent and 22 percent, respectively, in the first three quarters.
Somehow, these positive developments have been largely neglected or even completely ignored by pessimists.
To beef up the economy in response to challenges, Chinese authorities have applied a broader-than-expected policy package since late September, which focuses on enhancing counter-cyclical adjustments, expanding effective domestic demand, supporting business operations, promoting recovery of the property market, and invigorating capital markets.
These incremental policies are set to intensify and play an increasingly significant role in driving economic growth. Preliminary data from October indicates that the effects of these policy measures are already starting to be felt.
As initiatives aimed at boosting consumption and investment continue to take effect, along with the accelerated implementation of the incremental policy package, solid support for the fourth quarter is being provided.
"We have ample reason to believe that China's economic growth curve will show more positive changes in the fourth quarter, further solidifying a trend of stabilization and recovery." -- Dong Yu
China has two immediate priorities -- meeting this year's economic and social development targets and advancing the broader goals set in the 14th Five-Year Plan (2021-2025).
Chinese authorities have been consistently seeking to balance short-term economic demands with long-term objectives. The year 2025 marks the final year of the 14th Five-Year Plan. Notably, the 102 key projects that were highlighted in the incremental policy package are closely aligned with achieving these goals, with special attention directed at sectors and areas where progress has lagged.
Investor confidence in China's development ultimately hinges on assessments and expectations regarding the country's economic fundamentals. A most significant message conveyed via the incremental policies is that the Chinese government possesses sufficient desire, resolve and means to address the existing challenges concerning the economy's fundamentals. This should be recognized globally as a shared consensus.
This latest package of incremental policies has a scope, depth and intensity unprecedented in China's history of macroeconomic management, showcasing the effective use of a systemic approach. Each problem is tackled through coordinated measures involving multiple departments, all working in the same direction. While some incremental policies have already been rolled out, others are still in the pipeline. Macroregulation will also remain flexible as circumstances evolve.
15th Five-Year Plan (2026-2030)"十五五规划"
It is natural to experience some growing pains during the transition from old to new growth drivers. The key to successfully shifting from over-reliance on real estate to a "multi-pillar" industrial system lies in the development of new productive forces, which are expected to take center stage in the upcoming 15th Five-Year Plan (2026-2030).
In the chat with Peking Ensight, Dong shared his policy advice. The 15th Five-Year Plan is anticipated to map out a detailed industrial blueprint. Strategic emerging industries are set to follow a tiered development approach, and some sectors will be encouraged to expand into international markets -- bolstering the core competitiveness of Chinese manufacturing.
For future industries, technological and industrial development roadmaps should be made clear, while a new wave of unicorn and gazelle companies are to be cultivated. Additionally, efforts to modernize traditional industries need to be enhanced. Hopefully, some pioneering projects can be counted on to provide replicable experience for industrial upgrades of a broader scope.
Policies that can directly boost consumer demand are necessary, especially those related to employment and consumption that can enhance household income.
Accelerating new urbanization and urban renewal should be prioritized as a means to stimulate big-ticket consumer spending. A large part of the efforts of Chinese cities will be focused on improving the living environment of residents in the 15th Five-Year Plan period.
Another primary issue in the 15th Five-Year Plan will concern the population. To stabilize birth rates, policy priorities need to alleviate concerns related to childbirth and child-rearing.
A comprehensive policy framework supporting child development should be established and accompanied by a set of integrated policies that can effectively solidify the expectation of embracing a child-bearing-friendly society, thereby encouraging more people to procreate.
By Han Qiao