Overcapacity in electric vehicles and other sectors, poor property markets and rising local government debt are likely to compromise economic recovery efforts and hurt China’s prospects in 2024, leading economists and academics warned on Friday.
Thank you for reading this post, don't forget to subscribe!Liu Yuanchun, president of the Shanghai University of Finance and Economics, said in a webinar that China could start the new year with a big bounce, but the momentum could wane later as risks weigh on economic growth.
Thanks to a series of support measures to curb recession risks since July, China’s economy made a modest recovery in the third quarter, expanding 1.3 percent compared with the previous three months and 4.9 percent year on year.
However, business confidence and property investment remain weak, while concerns remain over the sustainability of the recovery.
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But the International Monetary Fund, the World Bank and other institutions have cut their 2024 growth forecasts to 4.4 percent or less.
Liu, who was among a select group of economists sought by Premier Li Qiang for policy recommendations at a State Council meeting last week, urged Beijing not to set China’s 2024 growth target “too low.”
“We need to set [GDP growth goal] At 4.5-5 per cent, Liu said, the economy still has immense potential to conclude in a bid to prove Western detractors wrong and build confidence.
The risk will increase next year. The problems of the property sector are not ending.
liu yuanchun
However, China will also have to grapple with old and new risks next year as they could slow growth, he said.
Liu said Beijing should consider new reform commitments at a major political event later this year to inject positivity and address a number of challenges to keep the momentum going.
Top cadres of China’s Communist Party are set to convene the third plenum of the 20th Party Congress in the coming months, with the gathering generally focused on economic issues. Expectations have risen that the meeting could take strong steps to strengthen the level of reform for the coming months.
“The risks will increase further next year. The problems of the property sector are not ending. House prices are stabilizing in Beijing and Shanghai, yet this is not the case in Guangzhou or Shenzhen, and lower-tier cities face greater uncertainties,” Liu said.
“We don’t know how the developers’ loan default drama will play out,” he said, warning policymakers that “indecision and inaction” would further complicate the challenge.
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Liu also said that the debt restructuring plan announced at the July Politburo meeting “will only alleviate some immediate problems but will not address the underlying issues of the way local governments typically borrow”.
Beijing faces a “huge” challenge to overcome China’s local government debt crisis, according to US ratings agency Standard & Poor’s.
Liu also cautioned that a boom in electric vehicle and battery manufacturing in China, prompting carmakers and local governments to launch new projects, could create new capacity problems and stifle growth.
[The] Revenge will reduce the spending trend and the sustainable way forward should be increased private investment
yu chunhai
Over the past decade, nearly 500 electric vehicle start-ups have emerged in China, but only 200 carmakers have been certified by Beijing for mass production.
“Smaller and less accomplished players will be unable to survive and many car and battery plants will become redundant,” said Cao Hua, partner at private-equity firm Unity Asset Management.
And with consumption accounting for nearly 95 percent of China’s gross domestic product in the third quarter, Yu Chunhai, deputy dean of Renmin University of China’s School of Economics, also cast doubt on whether the boost to the economy will be sustainable.
,[That] Retaliatory spending will be reduced and the sustainable way forward should be increased private investment,” Yu said.
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Economists also called for renewed efforts to boost spending, including direct cash distributions.
Ning Jize, former director of the National Bureau of Statistics, said in an opinion piece in the People’s Daily this month that policymakers should focus on boosting consumption, especially home and car purchases.
Ning also urged “forced implementation” of support measures for the private sector to encourage investment and formulate solutions to common problems faced by a large section of businesses, such as insufficient orders and triangular debt problems.
“The data shows the economy is improving, but there is a huge gap between the data and how the rank and file feel about the economy and their livelihoods,” Yu said.
Source: amp.scmp.com
