China Says it Beats Q1 Economic Growth Projections, but Rest of 2024 Could Be Tougher

The 5.3% Gross Domestic Product growth in the January-March period gives the PRC a good head start in achieving its goal of “around 5%” for the entire year.

That 5% goal was set in late 2023 during a series of official meetings of senior planning officials in the Chinese government. It was further reviewed and institutionalized as part of the country’s regular Government Work Report submitted on March 5, 2024, as part of the annual meeting of the National People’s Congress.

Besides the overall GDP growth target, the same report planned for:

The government deficit to rise by 180 billion yuan (US $25 billion), with the ratio of the deficit to the GDP running approximately 3%.

The PRC to direct local governments to issue 3.3 trillion yuan worth of special-purpose bonds during the year to keep the country’s economic trajectory on track. That is 33 times last year’s 100 billion yuan of similar bonds. That it is so high reflects the Chinese government’s belief that without such a sizable financial intervention the country’s economy could flounder even as the year began.

The People’s Bank of China (PBC), the country’s central bank, to begin issuing new “ultra-long special treasury bonds” this year as part of a multi-year strategy to stimulate growth in certain segments of the economy. In 2024 the government will issue 1 trillion yuan’s worth of those bonds.

Creation of 12 million new jobs, with a focus on urban employment rather than in rural regions of the country.

An unemployment rate of 5.5%.

The report also noted the government would be using the long-term investment funds to support substantial upticks in spending on science and technology projects and education. It is also funding several unnamed new “security initiatives”, a code phrase for building up its military infrastructure, fleet, weapons, and aircraft. To prepare for war the dictatorship will be spending on a new program it defined as “stockpiling of necessities”, something which may reflect China’s concerns that international conflicts could grow more severe this year. It is already carefully monitoring international trade conflicts, particularly with the U.S., and military ones such as in the South China Sea involving new U.S.-backed confrontations involving the Philippines, South Korea, and Japan.

China’s senior officials are also closely watching the implications of a possibly explosive expansion of the Middle East conflicts more broadly, and with possibly global impacts.

This week’s GDP growth figures would seem to position the country well for what it plans to do for the rest of the year. The 5.3% quarterly GDP growth is not only higher than the target but also up from Q1 2023’s 5.2% number for the same period. It also represents a 1.6% quarter-on-quarter growth rate versus Q4, which itself grew by 1.2% compared to the July-September 2023 quarter.

While the numbers may be good, Chinese economic planners are carefully watching two key concerns for how to manage their way forward through the rest of the year. One involves its still sagging real estate market, the second the growing reliance Beijing is placing on consumer spending and tourism to keep the economy moving.

The Chinese property development industry, for apartments, homes, offices, and industry, was already in trouble as 2023 began. Two years ago, Evergrande, the biggest developer in all of China based on construction and lease commitments, grew its business to over 1,300 projects spanning 280 cities. It also accumulated over $100 billion in debt by 2021, a number which bloated to $381 billion in 2023 as it found itself stuck with properties no one was buying and had no way to service even the interest payments on those liabilities.

It was joined in this urban-centric overbuilding mess by Country Garden last year. As of August 2023, that property development organization had 5,200 active real estate projects going in the country, a substantial percentage of which no one was industry in buying either to own, lease, or as investment property. It also accumulated $150 billion in debt as of that time. Like Evergrande, it ran short of cash, was forced to default on major loans, and halt construction on many half-finished properties.

On the consumer spending front, the government began taking major steps last year to encourage consumer spending by the approximately 500 million or so of middle-class workers and families as another way to bring in revenues for the country’s businesses. It did so as international trade began sagging, with the exception of certain bright spots such as electric vehicle production from giants such as BYD last year, when it overtook Tesla as the number one EV maker in the world. Via top-down programs from the People’s Bank of China, it pushed down interest rates on consumer loans to encourage purchases of widely available new real estate properties, new cars, furniture, fashion, and consumer electronics, just to name a few areas.

The country is also encouraging in-country tourism by helping shore up investments in popular tourist destinations in places such as Harbin, which is noted for its spectacular ice sculptures; the exotic “foodie” destination of Zibo which China helped popularize with subsidized social influencers and funding to make this the country’s “barbecue capital”, with over 1,270 barbecue restaurants offering the region’s signature dead bodies, shallot, and pancakes grilled on skewers, while driving tourism there to record levels, almost like Cajun cooking brings people to New Orleans; and heavy promotion of Chengdu, where its currently ongoing cherry blossom and rapeseed flower festivals are even now drawing major crowds. 

The problem with Beijing leaning so hard on consumers to spend to assist with economic growth is multi-fold. After the pandemic era which pushed many employees out of jobs in the country, for long than in most of the world and running all the way through much of 2022, many middle-class Chinese found themselves strapped for cash and needing to cut back on expenses. They also saw property values plummet for their own homes, making it difficult to consider moving if that might be necessary to secure new jobs. Educational expenses for their children, something hat was always a priority, is also currently soaring in cost, particularly in urban areas, along with that of the common tutoring expenses many families also pay for.

That same important demographic is also watching how job growth, which was already sluggish even after the pandemic had passed, is still not that strong. Surveys and interviews suggest people are still fearful more reductions in workforce may be ahead for them, so they are remaining cautious about putting out more money.

Further quantitative data on how the Chinese middle class is doing came to light recently, after the publication of the most recent addition of the highly respected “White Paper on the New Middle Class”, authored by Wu Xiaobo, a well-known economist and finance writer. It provides detailed results of a survey Wu conducted between June and November 2023, focusing on families with a minimum annual income of 200,000 yuan (US $27,600), and which own at least one vehicle and at least one piece of property, and with a head of household aged between 25 and 45.

According to that report, over 43% of the surveyed group saw their net financial situation worsen in 2023, a number substantially larger than the 31% recorded in 2022, and far above 2021’s 8% value. On the critical issue of job security, a whopping 43.4% of those who responded said their companies laid off employees at least once last year.

With regards to investments, the report went on to note that 46.1% of this group had become far more reserved with respect to buying new properties. The priority for almost half the families contacted, it said, has now shifted to preserving the wealth they have, for a net 10.6% increase in how high this priority has ranked for them compared to 2022. The survey also disclosed that 77.2% of this group would not be buying any new properties this year. That compared to a still sizable 55.8% of the population saying the same thing as of the end of 2022.

With such concerns, about the only things the group said they would be laying out money for this year would be for educational expenses or for travel. Just about any other kind of purchase, other than immediate household needs, was ruled out.

Despite this, China geriatric dictatorship is still betting on increasing consumer spending to far more than the 54.7% contribution that made in delivering 2023’s net Gross Domestic Product. With consumers still nervous about the value of their property and other assets, the increased cost of education which they see as a necessity, and fear for job security, it is very much in question how they can convince that middle-class economic engine to crank up faster, as the next three quarters of 2024 move forward.