Is China's Plan to Boost the Economy in 2024 Full of Holes?

Consider signing up for CNN's Meanwhile in China newsletter, for insights into the country's economic growth and its global impact. Despite top officials' pledge to prioritize economic growth in the coming year, the absence of consumer demand-boosting measures may pose challenges in fulfilling this promise.

The highly-anticipated annual Central Economic Work Conference (CEWC) in Beijing concluded late Tuesday with a pledge to prioritize "the central task of economic development and the primary task of high-quality development." The meeting emphasized the need to pursue growth while ensuring stability and to prioritize innovation alongside traditional practices.

President Xi Jinping hosted a meeting that was described by Larry Hu, the chief China economist at Macquarie Group, as being more focused on economic growth compared to previous years. Hu stated that with a more proactive approach, policymakers may set the GDP growth target for next year at "4.5-5%" or "around 5%", which is similar to the goal for 2023.

Citi analysts expressed doubt that this level of growth could be accomplished without specific stimulus measures aimed at consumers. They noted a lack of mention of substantial policies to support consumption and a lack of detailed discussion on increasing household income.

The second largest economy in the world is experiencing worsening challenges, with weak consumer spending having a significant impact. Despite promises from policymakers to increase domestic demand and boost consumer spending, there has been no substantial stimulus, despite economists and government advisors urging more aggressive actions.

UBS analysts said that achieving [the 5% level] would be extremely difficult due to the ongoing growth challenges and the relatively conservative policy support approach outlined in the Conference. They anticipate that growth will decline to 4.4% next year.

Morning commuters passing through a construction site in Beijing on Monday, October 30, 2023.

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Fighting deflation

Besides consumption, falling prices are a major concern and policymakers seem to have acknowledged the problem for the first time in years.

China has been struggling with low prices this year, mainly due to a sluggish property market and decreased spending. Deflation is harmful as it may cause consumers and businesses to delay purchases or investments in the hope of even lower prices, potentially leading to a harmful cycle of economic slowdown. The goal should be to align total social financing and money supply with economic growth and price targets.

Boosting the money supply is a strategy that central banks can employ to combat deflation. "It's the first time they've included the price target in the report," Hu remarked. "In essence, monetary policy may become more accommodating in response to deflationary threats." This suggests that there could be interest rate reductions in the coming months, he further noted.

Last month saw a significant 0.5% drop in the Consumer Price Index, the largest decline since the onset of the pandemic three years ago. This decrease represents a faster rate of deflation compared to October, which saw a 0.2% drop from the previous year.

The top officials of the Communist Party stated that their primary focus is on establishing a modern industrial system centered around "technological innovation."

A woman selects clothes at a shopping mall in Beijing on June 15, 2023.

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Building is back?

The CEWC readout also indicated the removal of the phrase "houses are for living in, not for speculation" for the first time since 2018. Chinese leaders first used this phrase in 2016 when they began implementing stricter rules for the property market. The elimination of this phrase from the Politburo's monthly meeting statement in July suggests the possibility of easing some property restrictions.

HSBC analysts emphasized the increasing urgency of stabilizing the property market, as signs indicate that the crisis is impacting the broader economy, financial markets, and consumer confidence. The CEWC also stressed the need to address risks in real estate, local government debt, and small and medium-sized financial institutions.

The offices of Zhongrong International Trust, a company partially owned by Zhongzhi Enterprise Group, in Beijing on August 22, 2023.

The government plans to speed up construction in three key areas - affordable housing, urban-village redevelopment, and public infrastructure facilities - in order to boost activity in the property sector, according to Florence Lo/Reuters.

China's current economic problems are largely attributed to the real estate slump, which has historically contributed to as much as 30% of the GDP. The industry entered a crisis three years ago when the government imposed restrictions on developers' risky borrowing habits. As a result, home sales have plummeted and many developers are facing financial difficulties. This has also impacted the shadow banking system, including trust firms, which have heavily financed developers in the past.