For full-year 2023, real GDP in China grew 5.2% year-over-year. This was modestly higher than the official growth target of “around 5%,” while nominal GDP growth moderated on deeper deflation pressure. As Kavan Choksi Professional Investor mentions, in 2024, the growth target in China is likely to stay unchanged at around 5% and growth-friendly policy may continue. However, large scale stimulus is not likely.

Kavan Choksi Professional Investor talks about what one may expect from China’s economy in 2024

As per baseline assumptions, China’s official fiscal deficit may increase to 4.2% of GDP, while the aggregate fiscal deficit in the fiscal budget may go up from 6.4% of GDP in 2023 to 6.9% in 2024. On the other hand, the augmented fiscal deficit is likely to be marginally higher at 12.2% of GDP in 2024, as off-budgetary items tend to be contractionary. Monetary and fiscal policy in China is expected to better coordinate with one another in 2024, with fiscal policy becoming more accommodative. A shift from less transparent off-budgetary items to a more transparent budgetary fiscal deficit is also expected. The Central Government may increase its fiscal deficit to partially mitigate fiscal difficulties by local governments. Fiscal support may continue to prioritize investment, particularly infrastructure investment for R&D and new economy sectors.

The housing market in China continued to decline in 2023 and has entered an overshooting stage. New home sales fell 17.3% in 2023 after a 26.8% decline in 2022, while real estate investment fell 9.6% in 2023. The only housing activity indicator that registered positive growth in 2023 was new home completion. Even though new home prices did stabilize in the first half of 2023, it began to decline again later in the year, falling 2% in the second half of 2023. The dramatic fall in new home sales in China is expected to continue with no sign of bottoming, despite the latest round of housing policy relaxation since August.

As Kavan Choksi Professional Investor says, challenges in the housing market of China come from both the supply and demand side. When it comes to the demand side, trends in urbanization, home ownership, as well as the purpose of home investment suggest that new home demand is likely to be on a downward trend. Home upgrade demand is steadily replacing new home demand. The overall demand is also softer in the near term owing to weaker expectations in regard to income and home prices, in addition to concerns about home delivery. When it comes to the supply side, financing issues faced by real estate developers are a huge obstacle. Hence the probability of the housing market bottoming in 2024 is relatively low. The housing market is likely to keep weighing on the economic growth of China, as real estate investment as a percentage of GDP has fallen from the peak of 13.9% in 2020 to an estimated 9.6%. Public housing plays a crucial role in macro-stabilization initiatives. The increasing need for both public and rental housing during the urbanization process is substantial. However, the primary obstacle hindering the progress of public housing development is the insufficient availability of funds.