CHINA PATHFINDER: Q2 2024 UPDATE
China Pathfinder: Quarter 2 2024 Update Written by Daniel Rosen and Matt Mingey
AUGUST 2024 China Pathfinder is a multiyear initiative from the Atlantic Council’s GeoEconomics Center and Rhodium Group to measure China’s economic system relative to advanced market economies in six areas: financial system development, market competition, modern innovation system, trade openness, direct investment openness, and portfolio investment openness. To explore our data visualization and read our 2023 annual report, please visit https://chinapathfinder.org/.
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hina’s leaders insisted that their goal of 5 percent or better economic growth for 2024 was on track in the second quarter, adamantly denying foreign allegations that faltering Chinese demand was causing massive overcapacity and export spillovers. Our reading of high-frequency indicators and assessments from well-regarded Chinese economists (discussed below) are at odds with that assurance. Reluctance to concede the extent of economic weakness has prevented Beijing from speaking with credibility about the steps necessary to address the causes of that weakness, leaving investors and consumers unsure about the outlook. But during that quarter, a potentially crucial meeting was announced: the long-delayed Communist Party Third Plenum to discuss economic priorities, which took place July 15–18. Third Plenum party leadership meetings have occasioned the most significant macroeconomic redirections in China’s modern history, such as in 1978, 1993, and—arguably—in 2013 under Xi Jinping himself. Preparatory consultations between leaders and economists thus became an important plank in the macroeconomic story of the second quarter of 2024 (2Q2024). We discuss the context for those second quarter preparations in Part 1 below, explore the details of what policy directions were signaled in Part 2, and look at whether the July 15–18 Third Plenum meeting changed the outlook in Part 3.
Part 1: China’s macro story in the second quarter of 2024
First, even at their strongest, exports alone cannot deliver the growth rates China wants. Second, Beijing’s over-reliance on exports is motivating stepped-up trade protection from across the advanced economy world, and—perhaps more surprisingly—from a host of developing nations in the Global South as well.
Through the second quarter, Beijing insisted that economic growth was strong and on track, but most vital signs of activity were at odds with that assurance. National Bureau of Statistics (NBS) data through May showed decelerating industrial production and investment data. All subcomponents of fixed asset investment (FAI) have slowed year to date, in line with some of the weakest credit indicators in decades, with a new low in total social financing (TSF) growth and with more repayments by nervous borrowers than new credit issued. This lack of new borrowing affected property and infrastructure, weighing on already bad property sales and causing additional price weakness. Infrastructure investment growth slowed through the quarter, despite faster bond issuance. Year-to-date private FAI slowed to 0.1 percent for January–May from 0.3 percent in January–April. Only retail sales data surprised on the high side, at 3.7 percent year-over-year (y/y) growth in May, though this was inflated by frontloaded sales-promotion events.
The divergence between official pronouncements and market reactions is growing. At its June press conference, the National Bureau of Statistics maintained that, “Judging from the operation of the main economic indicators…transformation and upgrading continue to advance, the national economy continues to pick up and improve, and conditions are generally stable.” The research departments of the International Monetary Fund (IMF) and the World Bank upgraded their 2024 gross domestic product (GDP) growth expectations based on these data. But readings from the NBS purchasing managers’ index have been in negative territory for nine of the past twelve months, including May and June 2024. China’s stock markets have performed poorly, and foreign investor surveys show deteriorating expectations (see the Direct Investment section below).
The singular bright spot for China is export growth, which was up a solid 7.6 percent y/y in May, from 1.5 percent in April. While current data show that export and related manufacturing strength continues, this comes with two important caveats.
The most visible expression of the gap between the official narrative and the concerns of other parties was seen in a strident campaign against foreign claims that China had structural
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