Bank of China report: GDP growth is expected to be around 5% in 2024

Reporter Tan Zhijuan reports from Beijing

Entering December, the market is more concerned about next year's economic trend and policy direction.

"In 2023, China's economy will gradually change from the abnormal state during the epidemic to normal operation, with the rapid growth of the service industry and consumption, and the continued rapid growth of new industries and new drivers, which will become an important support for economic growth. In the first three quarters, China's GDP grew by 5.2 percent, up 2.2 percentage points from the same period last year. China's GDP is expected to grow by about 5.6% in the fourth quarter and 5.3% for the whole year. A few days ago, the "China Economic and Financial Outlook Report (2024)" (hereinafter referred to as the "Report") released by the Bank of China Research Institute said so.

Looking forward to 2024, the report believes that the external environment may improve, the effect of stable growth policies will continue to appear, and domestic demand is expected to continue to recover. Consumption is expected to recover further, infrastructure and manufacturing investment is expected to grow rapidly, and the decline in real estate investment may narrow slightly. China's economy will return to potential growth levels, with GDP expected to grow by around 5% in 2024.

All three major demands are likely to improve next year

For the economy in 2024, the report believes that the three major needs may improve, and domestic demand is still the main support.

First of all, consumption is expected to continue to recover and continue to play the role of "ballast stone" for economic growth.

In terms of consumption, the "Report" believes that, first, residents' incomes and expectations are expected to continue to improve, laying a good foundation for consumption growth; second, the policies of expanding domestic demand and promoting consumption will continue to be effective, which will create good conditions for the recovery of consumption; and third, service consumption still has great potential for development. With the post-80s, 90s and 00s generation becoming the main force among Chinese consumers, as well as residents' higher requirements for spiritual enjoyment, and the continuous innovation of superimposed service consumption scenarios and formats, service consumption will maintain a strong development momentum in the future.

As a result, the report predicts that the consumption growth rate in 2024 will be about 6%, which is lower than the growth rate in 2023 (expected to be about 7.6%), but significantly higher than the average growth rate in 2022-2023 (expected to be about 3.7%).

Second, in terms of investment, infrastructure and manufacturing investment is expected to grow rapidly, while the decline in real estate investment may narrow slightly.

In terms of infrastructure, with the implementation of a package of debt instruments and the optimization of the debt structure of the central and local governments, local financing conditions will gradually improve, and the central government's financial support for the construction of infrastructure projects will increase. The additional 1 trillion yuan of treasury bonds issued by the central government in 2023 will form a physical workload in 2024 and boost the growth of infrastructure investment.

Second, manufacturing investment is expected to accelerate. "In terms of funding sources, corporate earnings will further improve with the recovery of industrial product prices, which will improve the endogenous financing conditions of enterprises. At the same time, finance will continue to maintain support for key areas such as manufacturing, and supplement the external financing of enterprises. The report said.

Third, the decline in real estate investment narrowed slightly. The report predicts that in 2024, the real estate regulation policy will continue to be optimized, promote the resolution of risks in the real estate industry, and release reasonable housing demand. At the same time, the transformation of urban villages and the construction of affordable housing will form a certain support for real estate investment. From 2021 to 2023, the number of affordable rental housing raised and constructed across the country will reach 5.63 million units, and in order to complete the "14th Five-Year Plan" goal, about 3 million units need to be built in the next two years, and it is expected that the construction of affordable rental housing will be accelerated.

Thirdly, in terms of exports, the report predicts that upward and downward factors in exports coexist, and structural upgrading is expected to continue.

According to the report, on the one hand, from the perspective of upward factors, first, China's export structural new highlights are expected to continue to highlight. Second, the opening of the U.S. inventory replenishment cycle is conducive to the improvement of China's exports. Third, the base of the previous year was relatively low.

On the other hand, from the perspective of downward factors, first, the uncertainty of the international environment still exists, and protectionism and geopolitical risk factors are increasing, and second, the lag effect of tightening monetary policy in the developed economies of Europe and the United States is still there. Although the interest rate hike cycle in Europe and the United States is about to come to an end, the interest rate level is still in a historically high range, and the inhibition effect on private consumption and corporate investment will continue, which is not conducive to the recovery of global growth momentum and international demand.

On the whole, the report predicts that China's exports will increase by about 2% year-on-year in 2024, and the growth rate will rise by about 6.2 percentage points from the previous year.

On the other hand, the supply side is expected to continue to stabilize and rebound: first, industrial production is expected to continue to improve. This is mainly due to: First, destocking is coming to an end. Second, there is a certain amount of support for external demand. Third, the policy of stabilizing growth has helped the steady growth of industrial production.

In terms of policy, since the fourth quarter of 2023, the Ministry of Industry and Information Technology has focused on 10 key industries with large scale and strong driving force, and formulated and implemented the "2023-2024 Steady Growth Work Plan" respectively, providing policy support for the growth of industrial production in 2024.

According to the report, it is expected that the industrial added value will increase by about 4.8% in 2024, and the growth rate will rise by about 0.4 percentage points from the previous year.

Second, the service sector is likely to continue to maintain a high level of prosperity. The report believes that in terms of life services, residents' consumption tends to be rational, forcing the life service industry to accelerate the improvement of service quality and efficiency. For example, through digital and intelligent means, we can better meet the needs of various consumer groups.

According to iiMedia Research, from 2020 to 2025, the scale of China's local life service market will increase from 19.5 trillion yuan to 35.3 trillion yuan under the empowerment of digital technology, with a compound annual growth rate of about 12.6%. There is still considerable room for growth in the software and information technology service industry. The strategy of manufacturing power, network power, and digital China has been further promoted, and information and communication technology has been deeply integrated into economic and social development, while there is still great room for improvement in the digitalization of the industrial field.

As a result, the report predicts that the added value of the service industry will grow by about 5.2% in 2024, about 0.7 percentage points lower than the previous year, but about 1.1 percentage points higher than the average growth rate in 2022-2023.

Give play to the role of active fiscal policy

In terms of policy, the report believes that "2024 is a critical year for achieving the goals of the 14th Five-Year Plan, and China's economic operation will continue to normalize." Against the backdrop of continued uncertainty in the international environment, the short-term demand of the domestic economy is intertwined with medium- and long-term structural problems, and the pressure on stable economic growth still exists. ”

Therefore, the "report" believes that in the future, it is necessary to combine short-term steady growth with medium- and long-term reform to ensure sustained and stable economic growth. It is necessary to strive to create a stable, harmonious, and favorable external development environment; give play to the role of a positive fiscal policy to promote a sustained rebound in domestic demand; unswervingly adhere to the general direction of market-oriented reform, properly handle the relationship between the government and the market, better stimulate the vitality of market players, and enhance the endogenous growth momentum of the economy.

In this regard, the report suggests: First, a more active fiscal policy should be implemented, and consideration could be given to breaking through the 3% fiscal deficit rate constraint. Second, the financial policy will take multiple measures at the same time to balance the relationship between "stabilizing growth", "promoting reform" and "preventing risks". Third, we will continue to promote consumption, stabilize investment, and further give full play to the supporting role of domestic demand in economic growth. Fourth, actively create a favorable external development environment and support enterprises to explore diversified overseas markets. Fifth, accelerate the risk resolution of the real estate market and support the construction of the "three major projects".

In terms of the construction of the "three major projects", the report said that in the long run, with the "three major projects" as the starting point, the transformation of urban villages and the construction of affordable housing will be combined according to local conditions, and the construction of affordable housing and commercial housing will be promoted in parallel, and the real estate supply structure will be optimized. Through collateral supplementary loans and the creation of new structural monetary policy tools, we will provide medium- and long-term low-cost financial support for affordable housing, urban village renovation and the construction of "peacetime and emergency" public infrastructure.