Is China decelerating or recovering? (2024)

FAQs

Is China's economy recovering? ›

China's manufacturing sector, bolstered by robust foreign demand and favorable government policy, has powered the country's recovery this year. Exports returned to growth in April. But consumer prices remained sluggish and credit shrank for the first time since 2005.

The International Monetary Fund says China's economic decline is likely to continue over the next four years as the world's second largest economy deals with a range of challenges from a rapidly aging population, higher unemployment and a property crisis.

“The domestic demand recovery will be slow and bumpy as targeted stimulus measures trickle through to investment sectors and the property recovery proceeds at a snail-like pace,” said Duncan Wrigley, chief China economist at Pantheon Macroeconomics.

China is experiencing the opposite, where rates will be lower for longer and deflation is taking hold. Prices paid at the factory gates, as tracked by China's producer price index (PPI), have fallen into negative territory, and this trend runs the risk of continuing in 2024.

Earlier in March, Beijing announced a series of policies to prop up economic growth and a growth target of around 5% for 2024, which Zhao said conveyed confidence the country's economy continuing to rebound and improve in the long term.

The GDP gap between United States and China widened significantly from $5 trillion in 2021 to nearly $10 trillion by 2023. Alongside the economic downturn, many of China's soft power gains during the pandemic evaporated following the abandonment of its zero-COVID policy.

For a long time, the consensus was that the curves would cross in the 2020s and 2030s. However, at the end of 2022, economists at Citibank estimated that the date would be in the mid-2030s.

Because debt accumulation in China has been financed mostly by domestic savings, overall financial risk is limited. The state owns many of the key creditors and debtors, which means a financial shock is unlikely to set off a financial crisis or a collapse in growth.

China growth quite sharply, by 0.5pp to 3.7%. However, for 2025, we forecast world growth to edge down to 2.4% as US growth slows to a below-trend rate of 1.5% and growth in the eurozone picks up to 1.5%. We also expect growth in China to fall to 4.5% next year as exports and government spending decelerate.

Deflation, while not a likely forecast for the U.S, needs to be recognized as a downside risk, and the Fed is right to do so.

How bad is China's debt? ›

We then estimate that China's total nonfinancial sector debt amounted to 235.1% of GDP, a high level relative to other emerging markets, among which public sector debt was 53.2% of GDP while private sector debt amounted to 181.9% of GDP. The debt problem may exacerbate banks' asset quality and weigh on growth rate.

One of the most prominent examples of deflation in recent times is Japan. The Asian country suffered persistent deflation with a cumulative fall in consumer prices of almost 4% between 1998 and 2012, as per the research in 'The Costs of Deflations: A Historical Perspective'.

Consistent with these observations, we show that the timing of China's overtaking will be determined by the pace of US and Chinese nominal GDP growth and moves in the bilateral exchange rate. For a range of plausible assumptions, we find that overtaking occurs during the 2030s, most likely in the middle of the decade.

China's service sector has doubled its share of economic output over the last two decades to account for 53.3% of GDP in 2021.

Subsequent relief and recovery legislation enacted in December 2020 and early 2021 gave the recovery an added boost. As a result, real (inflation-adjusted) GDP surpassed its pre-recession peak in the first quarter of 2021, less than a year after the trough of the recession.

China is targeting “around 5%” growth in 2024 and vowed to “transform" its growth model in the face of several significant challenges. (China claims its economy grew 5.2% in 2023, which some experts doubt.) In addition, China set its consumer inflation target to 3% and unemployment target at 5.5%.