Passengers walk along the platform after getting off a train at Chongqing North Railway Station on the first day of the 2025 Spring Festival travel rush on January 14, 2025.
Cheng Xin | Getty Images News | Getty Images
BEIJING – With promised government support still to come, China's economy has not yet seen the turnaround investors have been waiting for.
While policymakers have cut interest rates and announced broad stimulus packages since late September, details of the much-anticipated fiscal support are unlikely to be revealed until an annual parliamentary session in March. Official GDP figures for 2024 are expected on Friday.
“China's fiscal stimulus is not yet sufficient to offset the drag on economic growth… Given China's structural challenges, we are cautious over the long term,” the BlackRock Investment Institute said in a weekly report on Tuesday. The company, which is slightly overweight on Chinese stocks, indicated it would be willing to buy more if circumstances changed.
Meanwhile, the decline in domestic demand and concerns about deflation are becoming increasingly pressing. Consumer prices barely rose in 2024, just 0.5% when volatile food and energy prices are excluded. That's the slowest increase in at least a decade, according to records from the Wind Information database.
“Consumer spending remains weak, foreign investment is declining and some industries are under pressure to grow,” Beijing Municipal Mayor Yin Yong said in an official annual report on Tuesday.
The capital is targeting consumer price inflation of 2% by 2025 and wants to promote technology development. While nationwide economic targets won't be announced until March, senior economic and finance officials have told reporters over the past two weeks that fiscal support is in the works and issuance of ultra-long bonds to boost consumption will exceed last year's.
China's announced stimulus measures will begin to take effect this year, but it will likely take some time to have a noticeable impact, Mi Yang, head of research for northern China at real estate consultancy JLL, told reporters in Beijing last week.
Pressure in the commercial real estate market will continue this year and prices could accelerate their decline before recovering, he said.
According to JLL, rents for high-end, so-called Grade A, offices in Beijing fell 16% in 2024 and are expected to fall almost 15% this year, with some rents even reaching 2008 or 2009 levels.
New malls in Beijing opened in 2024 with an average occupancy rate of 72% – previously such malls were not opened when the rate was below 75% or much closer to 100%, JLL said. Within a year, however, the new malls reached 90% occupancy, the consulting firm said.
household appliances
Unlike the US during the Covid-19 pandemic, China has not handed out cash to consumers. Instead, Chinese authorities announced in late July that they would allocate 150 billion yuan ($20.46 billion) in ultra-long bonds for trade-in subsidies and another 150 billion yuan for equipment upgrades.
China has already spent 81 billion yuan on this year's trade-in program, officials said this month. It includes more home appliances, electric cars and a discount of up to 15% on smartphones priced at 6,000 yuan or less.
Consumers who buy premium phones tend to upgrade and recycle their devices more often than buyers at the lower end of the market, suggesting the government may want to encourage a new group to shorten their upgrade cycle, Rex said Chen, CFO of operator ATRenew shops processing smartphones and other used goods.
Chen told CNBC on Monday that he expects the trade-in subsidy program to increase the recycling transaction volume of eligible products on the platform by at least 10 percentage points, up from 25% growth in 2024. He also expects the government A similar trade will be carried out in-policy for the next few years.
However, it is less clear whether the trade-in program alone can lead to a sustained recovery in consumer demand.
Ting Lu, chief China economist at Nomura, said in a report on Tuesday that he expected the sales surge to ease in the second half of this year and that tepid new home sales would limit demand for home appliances.
Property
Real estate and related sectors such as construction once accounted for more than a quarter of China's economy. When central authorities began cracking down on developers' high levels of debt in 2020, it had a far-reaching impact on the economy, alongside the Covid-19 pandemic.
China changed its stance on real estate in September after a high-level meeting led by President Xi Jinping that called for halting the sector's decline.
Measures to support the sector include using a whitelisting process to complete construction of the many apartments that have been sold but not yet built due to developers' financial constraints. New apartments in China are typically sold before completion.
Jeremy Zook, senior China analyst at Fitch Ratings, said the property market had not yet bottomed out and authorities could provide more direct support. He pointed out that although China wants to reduce its dependence on the real estate sector for growth, it is difficult for the economy to move away from the real estate sector.
The government's recent measures have contributed to the overall stock market rally and slightly improved sentiment.
Sales of new homes in China's largest cities rose nearly 40% in the past 30 days compared to a year ago, analysts at Goldman Sachs said in a Jan. 5 report.
However, they warned that high inventory levels in smaller cities suggest house prices “have further potential for decline” and that housebuilding is “likely to remain under pressure in the coming years”.
In the relatively wealthy city of Foshan – near the city of Guangzhou in southern China – clearing housing stock could take 20 months in one district and seven months in another, according to a 2024 report by the Beike Research Institute, a Real estate sales platform in China affiliated with a major corporation.
Citywide, sold space fell 16% last year, reaching its lowest level in a decade, the report said.
Geopolitical concerns
China's economic challenges are complicated by tensions with the United States. 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.
This attitude has pushed a growing number of European companies in China to locate locally if they want to keep customers in the country, despite additional costs and lower productivity, the EU Chamber of Commerce in China said in a report last week.
Official Chinese statements have also emphasized the security-development nexus.
A slogan for part of Beijing's efforts to support growth is trying to build “security capabilities in key areas,” emphasized Yang Ping, director of the Investment Research Institute within the National Development and Reform Commission. She spoke at a press event on Wednesday.
This year, “increasing consumption takes priority over improving investment efficiency,” Yang said in Mandarin, translated by CNBC. “Expanding and stimulating consumption is at the heart of this year’s policy adjustment.”
She dismissed concerns that the impact of trade-in subsidies on consumption would wane after an initial surge, noting that further details would be announced after Parliament's session in March.