China has entered a “critical year” as a financial expert warns Beijing’s economic future remains on a knife-edge.
Beijing is being encouraged to take decisive action to prevent a fiscal crisis, with strict Covid measures harming growth.
Li Qiang used a speech at the World Economic Forum in Davos today to claim China’s gross domestic product grew an “estimated” 5.2 per cent last year.
However, a Reuters poll of analysts suggests 2024 could have a bleaker outlook with a drop to just 4.6 per cent.
China's economy is facing a downturn in 2024
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The National People’s Congress is expected to rubber-stamp China’s five per cent growth target yet again when it meets in early May.
China’s economic outlook has been adversely impacted by a property downturn, weak exports, wary investors and deflationary pressure.
Robin Xing, chief China economist at Morgan Stanley, told The Financial Times: “I think it’s a critical year for the Chinese economy in the sense that deflation could be entering a vicious cycle.”
He added: “To break that cycle, we need to have some very meaningful policy efforts.”
China’s core inflation rate is much lower than much of its economic rivals at just under one per cent.
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China’s economic outlook has been adversely impacted by a property downturn, weak exports, wary investors and deflationary pressure
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The US is registering inflation at around four per cent, with the UK and Eurozone in the mid-five per cent region.
Xing argued companies had already started cutting debt and refraining from capital expenditure, including hiring.
He also pointed out that the job market remains tough but salary expectations continue to deteriorate.
Xing was also keen to stress the need for Beijing to create a fiscal package that targets consumption rather than more investment in manufacturing.
He claimed such a situation could benefit China’s hundreds of millions of migrant workers if it offered more access to social benefits and reduced their incentive to hoard savings rather than spend.
Xing added: “We need a decisive shift to fiscal easing.
China is currently facing challenging economic headwindsREUTERS
“Of course the size matters and the speed matters. If policy continues to undershoot, eventually the policy ask to break this debt-deflation trap could be even bigger.”
The People’s Bank of China left an important lending rate on hold on Monday despite market expectations of a cut.
Beijing also shocked investors by announcing tough draft restrictions on video games after previously offering reassurances that a tech crackdown had ended.
The Chinese Government’s tried to calm concerns by firing the official responsible for the draft rules.
However, a number of analysts said the damage was done.
Experts now fear hitting a GDP growth target of five per cent this year is slightly ambitious.
