China Economic Update Report

Quarter 3, 2024

In this issue:

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China's Q3 GDP grew by 4.6%, with the Bank of China forecasting 5% growth in Q4

The country's GDP experienced a growth of 4.6% in the third quarter, following a 4.7% growth in the second quarter. In the first three quarters, China's GDP grew by 4.8%, reaching over 94.97 trillion RMB (about 13.34 trillion USD).

The main drag on China’s economic growth in the third quarter of 2024 was the weakening growth rate of residents’ consumption expenditures. In the first three quarters of 2024, final consumption expenditure contributed only 2.4% to the cumulative year-on-year GDP growth rate, a decrease of 0.6% compared to the first half of the year. The year-on-year growth rate of per capita disposable income of Chinese residents in a single quarter was 5.0%, up 0.5% from the second quarter, but still at the second lowest level since the first quarter of 2023. In the third quarter, per capita consumption expenditure increased by 3.5% year-on-year in a single quarter, a decrease of 1.5% compared to the second quarter. Factors dragging down consumption: weak consumption willingness and slowing job market recovery.

On the production side, the growth rate of industrial value-added increased by 0.9% to 5.4%, and the service sector production index rose by 0.5% to 5.1%. On the demand side, consumption and investment growth rates showed marginal improvements, while export growth support weakened. In September, retail sales grew by 3.2% year-on-year, a rebound of 1.1%, fixed asset investment increased by 3.4% year-on-year in a single month, up 1.2%, and export delivery values declined by 3% to 3.4%. In terms of month-on-month changes, seasonally adjusted and ring-fenced growth rates of industrial value-added, fixed asset investment, and total retail sales of consumer goods in September, released by the National Bureau of Statistics, were 0.59%, 0.65%, and 0.39% respectively, up 0.27%, 0.37%, and 0.42% from August, indicating a significant recovery. The effects of the new round of incremental macro policies implemented since September 24th have already begun to emerge.

From January to September 2024, the cumulative fixed asset investment grew by 3.4% year-on-year, significantly higher than the annual growth rate of 3.0% for last year. Manufacturing investment stood out among the three pillar sectors with a cumulative year-on-year growth rate of 9.1%, substantially surpassing the 6.5% recorded in the same period last year and continuing to lead the way. Infrastructure investment also demonstrated its potential for sustained growth, with a cumulative year-on-year growth rate of 4.4%. In contrast, real estate development investment faced certain challenges, with a cumulative year-on-year decline of 10.2%, slightly widening from the 9.6% decline for the whole of last year, and still bottoming out.

Looking ahead to the fourth quarter, the Bank of China predicts that export growth may slow down, and effective improvement in domestic demand will be crucial for the recovery of future economic prosperity. Assuming the external environment remains stable overall, with intensified macro policy efforts that yield good results and accelerated recovery in domestic demand, GDP growth in the fourth quarter and for the whole year is expected to be around 5.1% and 5% respectively. UBS has also revised up its forecast in October for China’s GDP growth, predicting real GDP growth of 4.8% and 4.5% for 2024 and 2025, respectively, up from the previous forecasts of 4.6% and 4.0%, representing an increase of 0.2% and 0.5%.

China's import and export volumes rose to 32.33 trillion RMB in the first three quarters

In the first three quarters, China's import and export volumes surpassed the 32 trillion RMB mark for the first time in historical comparison to the same period, with the figures reaching out 10.15 trillion RMB in the first quarter, 11 trillion RMB in the second quarter, and 11.17 trillion RMB in the third quarter in 2024.

According to data from the General Administration of Customs, in the first three quarters, China’s total import and export volume reached 32.33 trillion RMB, up 5.3% year-on-year. Exports totaled 18.62 trillion RMB, up 6.2%, while imports amounted to 13.71 trillion RMB, up 4.1%.

The growth rate of exports slowed down year-on-year, mainly due to significant disruptions to shipping smoothness and costs caused by extreme weather, international geopolitical conflicts, and strikes at some overseas ports. The import growth rate declined year-on-year and performed weaker than exports, mainly affected by the weaker recovery of demand and declining import prices of energy and industrial raw materials. On the one hand, the continued adjustment of the real estate sector, sluggish consumer demand, falling industrial goods prices, and operational pressures faced by enterprises have weakened their willingness to expand raw material imports and inventories. On the other hand, concerns about the prospect of a global economic slowdown, especially the sluggish manufacturing activity in major economies, have caused prices of energy and some raw materials to fall, which also dragged down import values.

In the first three quarters, China’s imports and exports with countries involved in the Belt and Road Initiative amounted to 15.21 trillion RMB, up 6.3% year-on-year, accounting for 47.1% of the total. Imports and exports with other member countries of the Regional Comprehensive Economic Partnership (RCEP) reached 9.63 trillion RMB, up 4.5% year-on-year, including 5.09 trillion RMB in imports and exports with ASEAN, up 9.4% year-on-year. Mechanical and electrical products exports amounted to 11.03 trillion RMB, up 8%, accounting for 59.3% of the total export value. Among them, high-end equipment exports grew by 43.4%, while exports of integrated circuit vehicles, and household appliances increased by 22%, 22.5%, and 15.5% respectively. In addition, traditional labor-intensive product exports amounted to 3.13 trillion RMB, up 2.8%. From the perspective of the export structure, mechanical and electrical products accounted for nearly 60%, indicating that export products are gradually shifting to technology-intensive ones.

Hainan taps international markets with Dim Sum Bond issuance in Hong Kong

Dim sum

Hainan, the vibrant free-trade port in China's southern region, has recently made a significant move to tap international capital markets by issuing Dim Sum Bonds in Hong Kong.

With a total issuance size of 3 billion RMB (about 423.2 million USD), these bonds are a testament to Hainan’s economic ambitions and a beacon for international investors seeking stable and attractive investment opportunities.

The Dim Sum Bonds, denominated in offshore Renminbi, offer a range of maturities, including three, five, and ten years, with interest rates of 2.07%, 2.15%, and 2.45%, respectively. These rates are desirable in the current market environment, where investors seek stable yields and diversification from traditional asset classes.

The issuance of these bonds can benefit Hainan and international investors. For Hainan, it provides a crucial source of funding for its ongoing free-trade port projects, which include infrastructure development, technological advancements, and sustainable initiatives. By issuing Dim Sum Bonds in Hong Kong, Hainan can leverage the city’s status as an international financial center, attracting diverse investors worldwide.

For international investors, Hainan’s Dim Sum Bonds offer a unique opportunity to gain exposure to China’s growing free-trade port economy. The bonds’ offshore Renminbi denomination also provides a hedge against potential currency risks, making them an attractive investment option for diversifying their portfolios.

In addition, Hainan’s use of Dim Sum Bonds demonstrates its commitment to financial innovation and openness. By issuing these bonds, Hainan showcases its ability to adapt to global financial trends and attract foreign capital to support its economic growth.

Overall, Hainan’s Dim Sum Bond issuance in Hong Kong is a significant step forward in its efforts to attract international investment and accelerate its free-trade port development. With attractive interest rates, a substantial investment case, and a commitment to financial openness, these bonds are poised to attract diverse international investors.

China's trade with BRICS countries continuously shows robust growth

China’s trade with BRICS countries (Brazil, Russia, India, China, and South Africa) continued to demonstrate robust growth in the third quarter of 2024, highlighting the strengthening economic ties between China and these emerging market economies. According to recent data released by China’s General Administration of Customs, China’s total trade with other BRICS countries amounted to 4.62 trillion RMB (about 649.7 billion USD) in the third quarter of 2024, marking a 5.1% increase compared to the same period last year.

Chinese container port

This growth was driven by strong demand for imports and exports across various sectors. In the industrial sector, China and other BRICS countries complemented each other’s production chains, with China exporting steel, textile materials, and intermediate goods such as integrated circuits, flat display modules, and aircraft parts to these countries. These exports saw double-digit growth rates, reflecting China’s manufacturing prowess and technological advancements.

In the agricultural sector, China and other BRICS countries met each other’s diverse needs for agricultural products. China imported over 80% of its poultry meat and frozen pollock and over 50% of its crabs from these countries. Meanwhile, China’s garlic, tomatoes, and citrus fruits exports were well-received, with growth rates exceeding 20%.

Moreover, China’s trade with BRICS countries extended to other areas, such as pharmaceuticals, fertilizers, and consumer goods. The robust trade growth between China and the BRICS countries underscores these partnerships’ increasing economic integration and mutual benefit.

With the expansion of the BRICS family to include new members such as Saudi Arabia, Egypt, the United Arab Emirates, Iran, and Ethiopia, the potential for further trade growth and economic cooperation is enormous. China is expected to continue to play a pivotal role in this cooperation, leveraging its manufacturing base, technological advancements, and market size to drive mutual prosperity and global economic growth.

About this report

This report was compiled with contributions from the team of business experts in our China offices.

ARC Consulting, a division of ARC Group, is an advisory firm specialised in supporting western companies operating in Asia. Our mission is to bridge between the business ecosystems of Asia and those in Europe and the US. Our services cover market entry and expansion, production and sourcing, cross-border M&A as well as ESG and operational improvement and compliance.

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    References:

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