Global Outlook April 2024: China's economy

[Music] welcome to the April edition of the EA's Global Outlook video my name is Robert Wood I'm the principal Economist for Latin America and I'm joined by tanen Shu senior Economist for China in our Beijing offices and he's going to be discussing the outlook for for China now Chen Shen I know you've just uh written an article looking at the budget for 2024 which Heralds a new model of fiscal expansion but I want to turn to comments by the uh the leadership at the recent opening of the annual legislative session and president shishin ping talked about unleashing new productive forces and his deputy leyang talked about a new Leap Forward can you unpack all of this for us and what's in it for foreign investors yeah and new productive forces is actually a term qued by President shining last September and uh has now become the new bus word for China's economy as an umbrella for productivity enhancements so um it's no secret that since the eruption of the US China trade war in 2017 China has become really preoccupied with self-sufficiency in Advanced Technologies and U supply chain security and it has sort to double down on its industrial policy uh but the results have been mixed while China made strides in sectors like uh EVs and ship building is still lags behind the world's Cutting Edge in for example Advanced chips and the Gap with the US in AI has even grown wider so consequently China's uh leaders are so anxious about potentially losing out in the competition that uh they this time list productivity growth at the top of the policy agenda in this year's um legis legislative session um the annual government's reports uh identify several priority areas including AI hydrogen power and Innovative medicine while uh the 2024 budget released last week as you said arranges the highest spending increase in um theoretical scientific research so it's the first time ever and regarding the implications for foreign investors on paper China well comes them with open arms for sure however s since new productive forces largely concerns being self-reliant in some key Technologies China will ensure it has full control and hence the opportunities for foreign businesses will be uh probably limited to non-strategic areas and the reality is also Complicated by National Security considerations over for example sensitive data and information potentially accessed by uh foreign businesses yeah so that means both Chinese officials and foreign Enterprises will tread very carefully and uh compliance will come first yeah great so investors are are going to be looking now I think at the third plenary session of the Chinese Communist Party Central Committee to be convened in April and May uh CH Chen you you've just written a mustre article which is up on our Viewpoint uh website previewing this uh what do you think the main takeaways are going to be uh from uh from this yeah so as a background the third plan session is conventionally a reform centered meeting in China's fiveyear political cycle and this time around we expect a set of uh rather incremental economic reforms which will be probably roll out over the next five years uh rather than any radical changes uh so first uh we think a reform will most likely take place in Public Finance because uh after some local government governments were caught in Deb distress last year fiscal sustainability has become a matter of urgency with the uh negative consequences for China's economic and social stability uh so we expect there will be some structural shifts in this regard such as uh diverting more tax revenues to lower levels of the government uh which actually Bears uh the heaviest fiscal burden um however in the foreseeable future we don't think the government uh will unveil new forms of Taxation to boost booster its covers because options like property taxes uh which has being widely discussed could uh hit Market confidence and destabilize a fragile economy in China uh and second China's uh demographic challenge is well known but we don't really expect the government to splurge public money on perers uh policies to uh to to to fight the Dem uh to to fight these challenges due to tight public finances and rather it will probably pursue more economical Alternatives like a delayed retirement scheme which will probably help smooth an upcoming spike in retirees and reduce China's widening pension Gap and sech we expect a wide range of uh again incremental liberalizations to revive confidence and create business opportunities uh for example we'll see whether China um passes legislation to protect the private sector whether it will relax uh FDI restrictions in the few number of uh Services sectors and whether it loses its landm Market but again I would question any possibility of more aggressive Chen changes because uh the current Administration under Shin Pang doesn't hold a very good track record for boat reform right of course of course you know very important uh meetings and I'm sure you and the team uh in our Beijing office will be covering uh those uh those meetings um to confirm and maybe you know update uh in terms of economic policies of the next you know five years for for China and uh you know I think a lot of uh a lot of investors will want to know um over the next few years how do you think the you you know from a China perspective how do you think the US and China uh rivalry will will play out particularly uh this year in the US we have presidential elections in November so uh we could have a change of president in 2025 how do you think things would be different uh between a a Biden or a trump Administration and how should foreign investors position themselves for these different scenarios yeah that's a very important question and uh in short the broader Trend will not change meaningfully under either person uh remember when Joe Biden took the presidency in 2020 uh much too people's surprise he didn't completely overthrow Trump's China policies such as high tariffs and Export controls but rather what he did was to make those restrictions more water TI through for example legislation as well as to ramp up coordination with the US allies since bilateral relations remain uh fraud strategic continuity will uh probably hold regardless uh of who will win out that means all the sanctions and the controls in place will still be maintained if not escalated uh but of course there will be um tactical nuances between the two and if Trump is elected he said to uh revive tariff threats as his signature out of the deal for example by using this to pressure China uh for a new Trade Agreement asking China to buy more American goods and the US commitment to Taiwan will also be more questionable given that Trump depict depicted Taiwan as an economic rival and furthermore his I uh isolation tendency will dilute security cooperation which could unnerve some Regional allies like Japan Korea and potentially give China more room to maneuver in the N International stage yeah and for bid uh I will simply think that he will just stick to his the his approach without many changes so geopolitics will continue to create uh plenty of operational challenges for business businesses but uh the door is uh isn't completely closed uh for foreign investors they should be uh really selective about the sectors they want to operate in or invest in uh for example participating in building China's again new protective forces is unlikely to be greenlighted as we said before but alternatively China's consumer Market is sizable and could be underrated at the moment and we could probably see opportunities in the health care sector uh if policies are liberalizing in the coming years okay and finally T Chen um going back to this year uh EA is forecasting a Slowdown in GDP growth to 4.7% which is just slightly below the government's um uper Target of of 5% can you say briefly what what's behind the Slowdown and also which sexors do you think are going to outperform this year yeah our relatively conservative growth forecast uh comes from two sources uh first the base effect was uh quite high in 2023 because of the strong post uh pandemic recovery in household uh consumption and that will uh weaken this year and second the housing sector is experiencing a protracted correction uh since uh 2021 uh and many large developers are close to being ins solvent and the government is not uh enforcing boat bailouts to these developers so there there will be the main source of uh risk but on the positive side uh 2024 will be another year uh another bright year for tourism and on the industrial side Chinese chip makers will probably grab more global market share uh especially in the context of global recovery in the electronic cycle uh and their boom uh along with uh similar strong improvements uh in automakers and ship Builders I would say yeah thanks thanks a lot Jen Chen I'm sure you're going to be covering all this um on Viewpoint uh and in the other space is um at this point you know I'd like to thank you again uh for for this Outlook uh and wish everybody uh goodbye be sure to check uh consult our editorial coverage and forecasting on our Viewpoint uh Channel and also to tune in to next month's edition of the global Outlook video

Channel: Economist Intelligence: EIU

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Length: 13min 3sec (783 seconds)

Published: Wed Mar 27 2024