CHINA PATHFINDER: Q1 2024 UPDATE
China Pathfinder: Quarter 1 2024 Update Written by Daniel Rosen, Matt Mingey, Camille Boullenois, and Laura Gormley
MAY 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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ebate about China’s domestic demand conditions came to a boil during the first quarter of 2023, as positive messages contrasted rising exports and political complaints from Europe, Asia, North America and (in the form of anti-dumping duties) elsewhere. Beijing worked hard to maintain the more constructive economic narrative that flowed from the November 2023 Biden-Xi meeting on the sidelines of Asia-Pacific Economic Cooperation (APEC) in San Francisco. The positive vibes emanated from climate cooperation and global debt talks, bolstered by relatively restrained Chinese behavior around Taiwanese elections. However, this warming trend was tenuous: economic and financial market headwinds inside China cast a shadow on external expectations, as concerns about the trade spillovers resulting from weak Chinese domestic demand mushroomed. External relations can only be positive if China demonstrates convergence with market norms. Based on the China Pathfinder framework, the opposite is in evidence, and market economies will discuss how to react at the coming G7 leader’s summit in Apulia, Italy in June.
China’s macro story in the first quarter of 2024
Cyclical improvements and a handful of bright spot industries are not enough to build a sustainable future on. Outside China, both advanced and (surprisingly) developing economies stepped up actions this quarter to address trade spillover concerns in light of weak domestic demand and anemic support policies for household and government consumption. The first quarter started with advanced economy emissaries urging Beijing to build demand support into its 2024 work plan so it was clear to see, instead of supporting only suppliers; by the end of the quarter China’s disinclination to do that, and its “overcapacity problem,” dominated the discussion. The United States, European Union, and Japan have publicized their systemic concerns about China’s capacity patterns in upstream areas like steel, midstream areas like legacy chips, and finished downstream goods like electric vehicles, windmills and much else. They are talking about unilateral, bilateral and (with the G7 leaders summit approaching in mid-June) plurilateral options to push back.
At the start of the year, Beijing declared that its 2023 gross domestic product (GDP) growth results came out perfectly as planned, just above the target floor, at 5.2 percent. That occasioned a growing chorus of debate, discussion and skepticism. Many of the components said to be growing, including the government fiscal impulse, looked flat or negative to economists inside and outside China. Despite these questions, Beijing revealed the same play book for 2024 over the first quarter: the economy would grow at 5 percent, bolstered by active fiscal support. On the positive side, because in our view 2022 and 2023 were extremely slow or flat growth years (0-1.5 percent), we expect China did see a modest economic improvement in the first quarter of 2024. After years of property crisis, the sector was more likely to see cyclical stabilization. In the aggregate property turned in yet another negative quarter, but some indicators finally turned positive. And strength in the electric vehicle (EV), battery and renewable energy sectors was real.
The most important event on the annual policy calendar, the National People’s Congress, did not endorse policy measures to stimulate demand, and in fact implied support for a rising trade surplus instead. The externally oriented China Development Forum, an exchange with foreign business leaders occurring since 2000, offered positive guidance for multinational business.
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