These factors are important as China continues to target 5 percent GDP growth this year, Shan said in a note on Sunday.
“Yes, activity slowed in June-August, downside risks to the third-quarter growth outlook have risen, and the Chinese economy still faces a number of deep challenges,” she added. “However, we expect growth to pick up in the rest of the year as the government works to meet the GDP target it set at the beginning of this year of around 5 percent.”
Three main factors
- The positive outlook is partly driven by the country’s accelerating fiscal easing, Chan said. Fiscal easing has been accelerating in recent weeks and is likely to help secure the growth target, analysts said in an earlier note.
- Export momentum remains strong China Strong, with Goldman analysts expecting a 7 percent increase in exports last month from a year earlier. However, some economists expect export growth in August to slow to 6.5 percent, according to a Reuters poll.
- Summer weather risks in the country are likely to diminish, with evidence of weather-related weakness reversing in Goldman’s high-frequency tracking.
As those risks ease, China’s struggling property sector could get a much-needed boost. Data released last month showed China’s fixed-asset investment grew 3.6 percent year-on-year in the first half of the year, below expectations of 3.9 percent, as infrastructure investment slowed due to heavy rains and floods.
bleak data
These positive growth expectations come Chinese economy After months of gloomy data, fueled by weak property sales and project starts in recent years as a large portion of the country’s available housing supply remains unoccupied.
On the other hand, consumer demand in China has raised warning signs as consumer spending remains weak despite rising household incomes. Retail sales of consumer goods grew 2 percent year-on-year in June, but rose to 2.7 percent in July.
China’s tech sector also faced headwinds, with earnings growth slowing to its lowest level since 2022.
Relatively optimistic expectations
For his part, Chinese economic affairs expert Jaafar Al-Hussainawi said that recent forecasts showed that China’s economic growth may exceed previous estimates, and may reach 5.2 percent in 2024, explaining that this improvement comes thanks to a set of measures taken by the Chinese government that restored confidence in the national economy after a period of slowdown and contraction in foreign investments.
Al-Husseinawi added that the main measures that contributed to these relatively positive expectations include:
Strong government stimulus: Positive data and fiscal stimulus have led to a rise in positive expectations for China’s economic growth.
- The government’s continued investment in infrastructure projects, especially as many Belt and Road Initiative projects near completion, has had a significant impact on boosting growth.
- As part of its stimulus policy, the Chinese government has lowered interest rates, which has helped stimulate the economy.
- The government has provided significant support to property developers who have declared bankruptcy, including soft loans at low interest rates. In this context, the Chinese central bank has provided $42 billion to the sector.
- The government purchased unsold buildings and allocated them to low-income people, which contributed to revitalizing the real estate sector.
- Support for the industrial sector, which accounts for a large share of China’s GDP, has been boosted, helping to bring greater stability to the economy.
Al-Husseinawi stressed that these policies have brought about a positive shift in the Chinese economy, which enhances expectations of stronger growth than initially expected.
Challenges on the road
In this regard, Joe Yarak, Head of Global Markets at Cedra Markets, pointed out that the Chinese economy has been suffering from a noticeable contraction in the industrial sector since 2023, as a result of inflation that began in 2022. He explained that despite the relative improvement in consumer price inflation, producer price inflation continues to have a negative impact on the Chinese economy.
Yarak explained that the real estate sector is the main reason for this economic crisis, as some major real estate companies have gone bankrupt, forcing the Chinese government to take steps to ease economic pressures by reducing short-, medium- and long-term interest rates. However, the economy is still facing major challenges.
The proposed government plans include revitalizing the economy with the goal of achieving 5 percent GDP growth, a goal that currently seems far-fetched. These plans include rescheduling the $5.3 trillion worth of real estate debt at reduced interest rates, in addition to providing additional stimulus packages. Chinese consumers and investors are facing a confidence problem and weak growth due to weak consumption.
“In this difficult situation, Chinese investors have turned to gold as a safe haven to hedge against economic risks,” he added, noting that the Chinese central bank and investors have been moving towards gold over the past 18 months. Therefore, the Chinese government is forced to take additional measures such as interest rate cuts and financial packages to support the real estate sector and bring it back on track.
