China Economic Update Report
Quarter 1, 2024
In this issue:
China's GDP recorded a growth rate of 5.3% YoY in Q1 2024, surpassing the average forecasts of 4.5%-4.6% by major institutions worldwide with ease
In the first quarter of 2024, China's gross domestic product (GDP) growth accelerated to 5.3% on the year, grew by 1.6% on a quarterly basis compared to the last quarter of 2023.
In the first quarter of 2024, China’s gross domestic product (GDP) growth accelerated to 5.3% on the year, grew by 1.6% on a quarterly basis compared to the last quarter of 2023. This performance comfortably beat the average forecast of 4.5% by 31 economists in a poll carried out by Nikkei, as well as the forecast of 4.6% by analysts in a Reuters poll. China is officially aiming for GDP growth of “around 5%” this year. China’s robust economic performance at the outset of the year underscores its resilience amidst global economic turbulence and domestic hurdles. Nonetheless, it is essential to acknowledge that the economic data for the first quarter reveals a blend of robust supply-side output and a lackluster performance in domestic demand.
Quarterly economic data released by the National Bureau of Statistics shows the strong momentum in key industrial and manufacturing sectors continues to drive the economy. In Q1 2024, the added value of industries above designated size (companies with an annual core business income of above RMB 20 million) in China increased by 6.1% year-on-year. The added value of high-tech manufacturing increased by 7.5% year-on-year in the first quarter, accelerating by 2.6 percentage points from the previous quarter. The supply of utility services including electricity, thermal power, gas, and water grew by 6.9% year-on-year.
Services sectors also maintain steady growth. In Q1 2024, the added value of the service industry increased by 5% year-on-year. The service industries with the highest growth in added value include the information transmission, software, and IT services industry with a 13.7% growth year-on-year, and the leasing and business services industry with a 10.8% of growth rate year-on-year. The transportation, warehousing, and postal industry and the hospitality and catering industry also saw sustained growth, each growing 7.3% year-on-year.
On the other hand, retail sales of consumer goods, which is a gauge on household spending, grew by 4.7%, supported by food catering. This is a deceleration from 8.4% year-on-year growth in the last quarter of 2023 and from 5.5% in the first two months of 2024, showing consumers’ subdued confidence over the economic outlook. Furthermore, the recession in the real estate sector still does not show tentative signs of recovery. In the first quarter, investment in real estate development fell 9.5% year-on-year, while sales of newly built commercial housing decreased by 27.6%. The crisis in the real estate sector has become a significant potential risk to the Chinese economy.
Exports and Imports Have Remained Robust
In Q1 2024, China's total value of import and export of goods amounted to 10.17 trillion RMB, marking a 5% year-on-year increase.
The total value of exports reached 5.74 trillion RMB, an increase of 4.9% (YoY); the total value of imports was 4.43 trillion RMB, an increase of 5%. Exports and imports accelerated by 4.1% and 2.3% respectively compared with the fourth quarter of last year.
According to the General Administration of Customs, the scale of imports and exports has exceeded 10 trillion RMB for the first time in the same period in history, and the growth rate of imports and exports hit a new high in the last six quarters.
China’s exports have remained robust thanks to the country is strategically adapting to the changing dynamics of global demand. China’s strategic shift towards ASEAN countries and enhanced focus on exporting high-tech and renewable energy products have helped stabilize export volumes. The country’s export market is now less dependent on traditional markets like the United States, aligning more with emerging and diversified global needs.
Investments Surge in the Technology Sector
The first quarter of 2024 witnessed a significant resurgence in China's technology sector, catalyzed by substantial government support and global trends favoring technological advancements.
The first quarter of 2024 witnessed a significant resurgence in China’s technology sector, catalyzed by substantial government support and global trends favoring technological advancements.
In March 2024, China’s ‘Two Sessions’ took place, marking the annual plenary meetings of the National People’s Congress (NPC), the nation’s primary legislative body, and the National Committee of the Chinese People’s Political Consultative Conference (CPPCC), its leading political advisory body. During these sessions, a notable emphasis was placed on the government’s commitment to bolstering science and technology as a priority for 2024. The central government budget is allocating 371 billion RMB (USD 51 billion) in funding for science and technology, a 10% increase compared to the previous year. Within this, funding for basic research will reach 98 billion RMB (USD 13.5 billion) in 2024.
From an industrial perspective, industries including hydrogen energy, new materials, innovative drugs, biological manufacturing, commercial aerospace, and technologies such as quantum technology, big data, and artificial intelligence, have become key terms.
In line with goals, the government has released various policies to incentivize manufacturing and technology innovation enterprises. For instance, the People’s Bank of China (Central Bank) announced in early April the establishment of a 500 billion RMB re loan for technological innovation and technological transformation, aiming at incentivizing and guiding financial institutions to increase financial support for technology-based small and medium-sized enterprises, key areas of technological transformation and equipment renewal projects. In addition, the government’s support for tech firms has also been bolstered by initiatives such as tax breaks, special economic zones, and funding for tech hubs, which are designed to foster an ecosystem conducive to innovative research and development.
Correspondingly, investments have surged in key areas. Recently one of the biggest hotspots in China is artificial intelligence, which is being integrated into various sectors including healthcare, automotive, and manufacturing to improve efficiency and innovation. In the first quarter of 2024, there were a total of 198 financing cases in the field of artificial intelligence, which grew by 15% compared to the previous quarter. The total financing amount reached 22.5 billion RMB, an increase of 42% compared to the previous quarter, and grew by 51% year-on-year.
Moreover, in late April, the Beijing government declared its intent to enhance the investment and financing landscape for AI. This entails fostering collaboration between social capital and national funds to boost direct investment in high-growth enterprises specializing in core AI technologies. The initiative aims to inject over 100 billion RMB into the sector over the span of five years. Additionally, it seeks to encourage AI companies to prioritize listing on the Beijing Stock Exchange.
China Increasing Efforts to Enhance Financial Regulations
In 2024, China has ramped up its efforts to bolster financial regulations, particularly aimed at safeguarding the stability of the banking sector, non-banking financial institutions, and online finance platforms. This has seen major financial regulatory agencies implementing a range of regulations and measures. These initiatives target the mitigation of systemic risks through the imposition of stricter capital requirements, the improvement of risk management practices, and the encouragement of greater transparency in financial transactions.
For instance, China Banking and Insurance Regulatory Commission (CBIRC), the top level of financial regulatory authority in China, announced its eight key tasks for 2024 in January. Among these, fully promoting the reform of small and medium-sized financial institutions to resolve risks is the primary task. Other tasks include preventing and controlling risks in key areas, strengthening credit risk management, preventing, and cracking down on illegal financial activities, and deepening financial reform and opening. The People’s Bank of China also emphasized at the 2024 Financial Stability Work Conference held at the beginning of the year that, preventing, and resolving financial risks, especially systemic financial risks, is the fundamental task of financial work. The central bank emphasizes that to effectively prevent and control financial risks in key areas, it is necessary to strengthen the analysis on the overall financial situation, improve the risk monitoring and evaluation system, improve the identification mechanism of systemic risks, and strengthen risk warning and early warning.
Additionally, the Chinese government has launched initiatives to educate the public about financial literacy and the risks associated with speculative investment. Efforts to internationalize the renminbi continue, with the aim of solidifying its position as a global currency, thereby facilitating smoother cross-border transactions, and reinforcing economic sovereignty.
About this report
This report was compiled with contributions from the team of business experts in our China offices.
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References:
Targets set in 2024 Government Work Report (www.gov.cn)
China’s central bank vows strong support for economy in 2024 (www.gov.cn)
Artificial Intelligence Q1 2024 Investment and Financing Market Report, Rime
