Passengers walk along the platform after getting off the train at Chongqing North Railway Station during the first day of the 2025 Spring Festival travel rush, January 14, 2025.
Cheng Xin | News from Getty Images | Getty Images
BEIJING — With promised government support yet to begin to materialize, China's economy has yet to see the turnaround investors have been waiting for.
Although policymakers have cut interest rates and announced broad stimulus plans since late September, details on the long-awaited fiscal support will likely not be known until the annual parliament meeting in March. Official GDP data for 2024 will be released on Friday.
“China's fiscal stimulus is not yet sufficient to address the factors inhibiting economic growth… We remain cautious over the long term given the structural challenges facing China,” BlackRock Investment Institute said in a weekly report on Tuesday. The company, which slightly overweights Chinese stocks, has indicated it is ready to buy more if circumstances change.
Meanwhile, falling domestic demand and deflation concerns are becoming more urgent. Consumer prices almost did not increase in 2024, and after excluding volatile food and energy prices, they increased by only 0.5%. According to data available in the Wind Information database, this is the slowest growth in at least 10 years.
“Consumer spending remains weak, foreign investment is falling and some industries face growth pressures,” Beijing mayor Yin Yong said Tuesday in the official annual report.
The capital assumes consumer price inflation at 2% in 2025 and supporting technology development. While nationwide economic targets won't be known until March, senior economic and financial officials have told reporters over the past two weeks that fiscal support is in the works and that ultra-long bond issuance to boost consumption will exceed last year's amount.
China's announced stimulus package will take effect this year, but it will likely take some time to see a significant impact, Mi Yang, head of north China research at consulting firm JLL, told reporters in Beijing last week.
The pressure on the commercial real estate market will continue this year, and prices may accelerate their decline before they rebound, he added.
Rents in Beijing for high-end offices, called Grade A, fell 16% in 2024 and are expected to fall by almost 15% this year, with some rents even approaching 2008 or 2009 levels, according to JLL.
New shopping malls in Beijing opened in 2024 with an average occupancy rate of 72% – previously such malls would not open if the rate was lower than 75% or much closer to 100%, JLL said. But within a year, occupancy rates in the new malls had reached 90%, the consulting firm said.
Household appliances
Unlike the US during the Covid-19 pandemic, China did not hand out cash to consumers. Instead, Chinese authorities announced 150 billion yuan ($20.46 billion) in ultralong bonds in trade subsidies in late July and another 150 billion yuan for equipment upgrades.
China has already spent 81 billion yuan on this year's trade program, officials said this month. It includes more home appliances, electric cars and up to 15% discount on smartphones priced up to 6,000 yuan.
Consumers buying premium phones are more likely to upgrade and recycle their devices than buyers at the lower end of the market, indicating the government may want to encourage the new group to shorten their upgrade cycle, said Rex Chen, chief financial officer of ATRenew, which operates stores for recycling smartphones and other goods used.
Chen told CNBC on Monday that he expects the trade subsidy program could increase the volume of recycling transactions for eligible products on the platform by at least 10 percentage points, compared with a 25% increase in 2024. He also expects the government to conduct similar trading -in politics for the next few years.
However, it is less clear whether the produce trading program itself can lead to a lasting recovery in consumer demand.
Ting Lu, Nomura's chief economist in China, said in a report Tuesday that he expects sales growth to moderate by the second half of this year, and weak new home sales will curb 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 the central authorities it started to crash on the high level of developer debt in 2020, which had an inverse impact on the economy with the Covid-19 pandemic.
In September, China changed its position on real estate following a high-level meeting chaired by President Xi Jinping that called for stopping the collapse of the sector.
Measures to support the sector include the use of: whitelist process completing the construction of many apartments that have been sold but not yet built due to developers' financial constraints. New apartments in China are usually sold before completion.
Jeremy Zook, chief China analyst at Fitch Ratings, said the housing market had not yet bottomed out and that authorities could provide more direct support. He stressed that it is difficult for the economy to move away from real estate, even though China wants to reduce its dependence on this sector for growth.
The government's latest actions helped the broader stock market rally and slightly improved sentiment.
In a Jan. 5 report, Goldman Sachs analysts said new home sales in China's largest cities were up nearly 40% over the past 30 days compared to last year.
But they warned that high inventory levels in smaller towns indicate that property prices “have room to decline further” and that housing construction is “likely to remain at low levels for years to come.”
In the relatively affluent city of Foshan – near Guangzhou in southern China – it can take 20 months to clear the housing stock in one district and seven months in another, according to a 2024 report by the Beike Research Institute. apartment sales platform in China.
The report shows that total space sold in the city last year fell by 16%, to the lowest level in 10 years.
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.
The stance puts pressure on an increasing number of European businesses in China to relocate locally, despite additional costs and reduced productivity, if they want to retain customers in the country, the EU Chamber of Commerce in China said in a report last week.
Official Chinese statements have also emphasized linking security with development.
The slogan of part of Beijing's efforts to support growth is to try to build “security capabilities in key areas” noted Yang Ping, director of the investment research institute of the National Development and Reform Commission. She spoke at a press event on Wednesday.
This year, “increasing consumption was prioritized over improving investment efficiency,” Yang said in Mandarin, as translated by CNBC. “Expanding and increasing consumption are the main goals of this year's policy adjustment.”
She dismissed concerns that the impact of trade subsidies on consumption would wane after an initial increase and indicated that more details would be available after the March parliament meeting.