Commuters walk along the platform after disembarking from a train at Chongqing North Railway Station during the first day of rush hour for the 2025 Spring Festival, Jan. 14, 2025.
Cheng Xin | News Getty Images | Getty Images
BEIJING – Since the promised government support has yet to materialize significantly, the Chinese economy has not yet experienced the turnaround that investors have been waiting for.
Although policymakers have cut interest rates since late September and announced broad stimulus plans, details of the long-awaited fiscal support are unlikely to be released before the annual parliament meeting in March. Official GDP data for 2024 should be released on Friday.
“China’s fiscal stimulus is not yet enough to address the brakes on economic growth… We remain cautious on China’s structural challenges over the long term,” BlackRock Investment Institute said in a weekly report on Tuesday. The company, which has a modest surplus of Chinese shares, has indicated it is prepared to buy more if circumstances change.
Meanwhile, the decline in domestic demand and concerns about deflation are becoming increasingly urgent. Consumer prices barely rose in 2024, rising just 0.5% after volatile food and energy prices are excluded. That’s the slowest increase in at least 10 years, according to data available from the Wind Database.
“Consumption remains weak, foreign investment is down and some industries are facing growth pressure,” Yin Yong, the mayor of Beijing, said in an official annual report on Tuesday.
The capital is targeting consumer price inflation of 2% by 2025 and aims to boost technological development. While national economic targets will not be released until March, senior economic and financial officials have told reporters in the past two weeks that fiscal support is in the works and that the issuance of ultra-long bonds to stimulate spending would exceed last year’s.
China’s announced stimulus will begin to take effect this year, but it will likely take time to see a significant effect, Mi Yang, head of research for northern China at consultancy JLL, told reporters in Beijing last week.
Pressure on the commercial real estate market will continue this year, and prices could accelerate their decline before recovering, he said.
Rents in Beijing for prime offices, called Grade A, fell 16% in 2024 and are expected to fall nearly 15% this year, with some prices even approaching 2008 or 2009 levels, according to JLL .
New malls in Beijing opened in 2024 with an average occupancy rate of 72% — previously, such malls would not have opened if the rate was below 75% or much closer to 100%, JLL said. However, within a year, the occupancy of the new shopping centers reached 90%, according to the consulting firm.
Household appliances
Unlike the US during the Covid-19 pandemic, China did not distribute cash to consumers. Instead, In late July, Chinese authorities announced 150 billion yuan ($20.46 billion) in ultra-long bonds for exchange subsidies and another 150 billion yuan to upgrade equipment.
China has already issued 81 billion yuan for this year’s replacement program, officials said this month. It covers more home appliances, electric cars and up to 15% off smartphones priced at 6,000 yuan or less.
Consumers who buy high-end phones tend to upgrade and recycle their devices more often than buyers in the lower end of the market, indicating that the government may want to encourage the new group to shorten their upgrade cycle, said Rex Chen, CFO of ATRenew, which operates recycling shops. smartphones and other used goods.
Chen told CNBC on Monday that he expects the swap subsidy program can increase the amount of recycling transactions of eligible products on the platform by at least 10 percentage points, up from 25% growth in 2024. He also expects the government to implement a similar trade-in policy next several years.
However, it is less clear whether the replacement program alone can lead to a sustained recovery in consumer demand.
Nomura’s chief China economist Ting Lu said in a report on Tuesday that he expects sales growth to fade by the second half of this year and that weak new home sales will limit demand for home appliances.
Real estate
Real estate and related sectors such as construction once accounted for more than a quarter of China’s economy. When the central authorities started shooting on the high levels of developer debt in 2020, which had devastating effects on the economy, along with the Covid-19 pandemic.
China changed its stance on real estate in September after a high-level meeting led by President Xi Jinping called for stopping the decline of the sector.
Measures to support the sector include the use of a list of white procedures to complete the construction of many apartments that have been sold but not yet built due to financial constraints of investors. New apartments in China are usually sold before completion.
Jeremy Zook, lead China analyst at Fitch Ratings, said the housing market had not yet bottomed and authorities could provide more direct support. He noted that the economy has found it difficult to transition from real estate, despite China’s desire to reduce its reliance on the sector for growth.
The latest government measures helped the broader stock market recovery and lifted sentiment slightly.
Sales of new homes in China’s biggest cities in the past 30 days rose nearly 40% from a year earlier, Goldman Sachs analysts said in a Jan. 5 report.
But they warned that high inventory levels in smaller cities show that property prices “have room to fall” and that homebuilding is “likely to remain depressed for years to come.”
In the relatively affluent city of Foshan — near the southern Chinese city of Guangzhou — housing inventory could take 20 months to clear in one district and seven months in another, according to a 2024 report by Beike Research Institute, a company affiliated with a large platform for the sale of apartments in China.
Total sold floor space in the city last year fell by 16% to a 10-year low, according to the report.
Geopolitical concerns
China’s economic challenges are complicated by tensions with the US. Similar to Washington’s export controls, Beijing has also made efforts to ensure national security by prioritizing domestic players in strategic sectors such as technology.
That attitude has pressured a growing number of European companies in China to localize – despite the extra costs and reduced productivity – if they want to keep customers in the country, the EU Chamber of Commerce in China said in a report last week.
Official Chinese statements also emphasize linking security with development.
The slogan for part of Beijing’s efforts to support growth is an effort to build “security capabilities in key areas“said Yang Ping, director of the investment research institute within the National Development and Reform Commission. Speaking at a press conference on Wednesday.
This year, “increasing spending is prioritized ahead of improving investment efficiency,” Yang said in Mandarin, as translated by CNBC. “Expansion and increased spending are the main focus of this year’s policy adjustment.”
She dismissed concerns that the impact of trade subsidies on consumption would fade after an initial surge and indicated that more details would emerge after a parliamentary meeting in March.
