China’s Economic Revival Faces Uphill Battle
Despite promises of government support, China’s economy has yet to experience a significant turnaround. Policymakers have cut interest rates and announced broad stimulus plans, but details on highly anticipated fiscal support won’t be revealed until the annual parliamentary meeting in March.
Fiscal Stimulus Falls Short
According to BlackRock Investment Institute, China’s fiscal stimulus is insufficient to address the drags on economic growth. The firm remains cautious about China’s structural challenges, but is prepared to invest more if circumstances change.
Domestic Demand Drops, Deflation Worries Rise
Consumer prices have barely risen, with a meager 0.5% increase in 2024, excluding volatile food and energy prices. This is the slowest rise in at least 10 years. Beijing city mayor, Yin Yong, expressed concerns about weak consumer spending, declining foreign investment, and growth pressure in certain industries.
Tech Development and Consumer Price Inflation
Beijing aims to bolster tech development and targets 2% consumer price inflation for 2025. However, nationwide economic goals won’t be announced until March. Senior economic and finance officials have hinted at fiscal support, including the issuance of ultra-long bonds to spur consumption, which will exceed last year’s levels.
Commercial Property Market Under Pressure
The commercial property market will continue to face pressure this year, with prices likely to drop before recovering. Rents in Beijing for high-end offices have already fallen 16% in 2024 and are expected to drop by nearly 15% this year.
Ultra-Long Bonds and Trade-In Subsidies
Unlike the US, China has not handed out cash to consumers. Instead, authorities have announced 150 billion yuan ($20.46 billion) in ultra-long bonds for trade-in subsidies and equipment upgrades. The trade-in program covers more home appliances, electric cars, and offers up to 15% discounts on smartphones priced at 6,000 yuan or less.
Boosting Recycling and Consumption
Rex Chen, CFO of ATRenew, expects the trade-in subsidies program to boost recycling transaction volumes of eligible products by at least 10 percentage points. However, it’s unclear whether the program alone can lead to a sustained recovery in consumer demand.
Real Estate Sector Struggles
Real estate and related sectors, which once accounted for over a quarter of China’s economy, continue to struggle. The government has shifted its stance on real estate, using a whitelist process to finish construction on sold but unbuilt apartments. New apartments in China are typically sold ahead of completion.
Tensions with the US Complicate Economic Challenges
Tensions with the US, including export controls and prioritizing domestic players in strategic sectors, have pressured European businesses in China to localize, despite added costs and reduced productivity. Official Chinese statements have emphasized coupling security with development.
Prioritizing Consumption and Security
This year, “boosting consumption has been prioritized ahead of improving investment efficiency,” said Yang Ping, director of the investment research institute within the National Development and Reform Commission. The government aims to build “security capabilities in key areas” and expand consumption, with more details to emerge after the March parliamentary meeting.
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