2024, 20 predictions

Original Liu Xiaobo

It's the end of the year again. Every year at this time, I write a forecast for the economy for the coming year, and this year is no exception.

Before I get into the predictions, let's recall how many of my predictions came true in my December 28 article "23 predictions for 2023".

Just counting it, 14 out of 23 predictions are correct or basically correct. There are two more - the number of newborns and the number of new urbanized people, official data have not yet been released, but I believe my prediction will not be wrong.

Here are 20 predictions for 2024:

1. With the intensification of macroeconomic regulation and control and the introduction of more "counter-cyclical" policies, 2024 will be the year of China's economy bottoming out and recovering. In fact, in the fourth quarter of 2023, some indicators have shown signs of bottoming out, such as industrial production, household consumption, investment, social finance, etc.

2. The economic growth target in 2024 is likely to be set at about 5%, and the difficulty of achieving it is slightly higher than this year, so fiscal, monetary, people's livelihood, opening up and other policies will continue to increase.

3. The central bank will continue to cut the reserve requirement ratio and interest rates, but there is not much space, perhaps close to 2023. The pace of RRR cuts is still likely to be 0.25 percentage points each time, and the rate cut is 10 to 15 basis points each time. In the LPR (Loan Prime Rate), the 5-year interest rate may fall more than the 1-year rate.

4. The risk-free interest rate (time deposit interest rate) and low-risk interest rate (bank wealth management) will continue to decline in 2024. This is conducive to stimulating investment and consumption enthusiasm. In 2024, household loans, especially medium- and long-term household loans (housing loans), will resume growth, and the growth rate of deposits will decline.

5. Broad money M2 is expected to break through the 300 trillion mark in January (or February) 2024. The stock of social financing is expected to exceed 400 trillion yuan in 2024. At the high point of the year-on-year growth rate of M2 and social financing stock in 2024, there is a high probability that it will not exceed 11%.

6. Fiscal policy will be moderately strengthened, that is, slightly stronger than in 2023. It is mainly reflected in the fact that the deficit rate will not be lower than this year (about 3.8%), the new national bonds and local bonds will slightly exceed this year, and tax cuts and fee reductions will continue.

7. The inflection point of real estate and urbanization has brought about an inflection point in local fiscal revenue. In order to ensure the operation of ordinary third-, fourth- and fifth-tier cities and towns, the intensity of fiscal transfer payments will be further increased, and the total transfer amount will reach a new high, which is expected to approach or even exceed 11 trillion yuan.

8. The state has set out to establish an "inter-provincial horizontal interest compensation mechanism for grain production and marketing areas", and the large provinces and cities (Guangdong, Zhejiang, Fujian, Beijing, Shanghai, etc.) with "net transfer" of grain will subsidize the major grain-producing provinces (Heilongjiang, Henan, Inner Mongolia, Jilin, Anhui, etc.) through this mechanism, which is actually a new type of transfer payment.

9. The national land transfer income is likely to be basically the same as in 2023. For the whole of 2023, it is estimated to be around 5.5 trillion, and the all-time high is 8.7 trillion in 2021. It is more difficult to sell land in small and medium-sized cities.

10. The real estate market will basically stabilize, and the bottom of the L-shaped will be drawn. In the core areas of some central cities, housing prices are expected to rebound slightly by the end of 2024.

11. There may also be some large real estate companies "problems", but the risk of the entire industry is controllable. In Zhejiang and other places, there will be a new generation of private real estate enterprises at the top of the national ranking (sales, sales area, land acquisition amount). Individual state-owned real estate enterprises that are not doing well may be consolidated.

12. First-tier cities will continue to relax the property market. Of the 11 districts in Guangzhou, 5.5 districts have no purchase restrictions, and the scope of purchase restrictions may continue to be narrowed in the future; the north, Shanghai, and Shenzhen may implement "differentiated policies", and the marginal urban areas may significantly lower the purchase restriction threshold, and even appear in urban areas with no purchase restrictions. For example, Yanqing, Pinggu, Huairou and Miyun in Beijing, Lingang New Area, Jinshan and Chongming in Shanghai, and Dapeng, Pingshan, Longgang and Yantian in Shenzhen.

13. The transformation of urban villages in super-large and mega-cities will be accelerated in an all-round way. The demolition and reconstruction of urban villages will fully implement the "net land transfer" model, which will help improve efficiency and reduce disputes, but will also increase the land price in the central areas of large cities.

14. The real estate tax pilot will most likely not be expanded in 2024. In October 2021, the National People's Congress (NPC) authorized some regions of the State Council to carry out pilot projects for real estate tax reform, and in March 2022, the Ministry of Finance stated that "taking into account the situation in all aspects, it does not have the conditions to expand the pilot cities for real estate tax reform this year".

15. There are structural opportunities in the capital market. Several key industries pointed out by the Central Economic Conference, such as artificial intelligence, life science and technology, commercial aerospace, low-altitude economy, quantum technology, etc., as well as key supported consumer fields (new energy vehicles, electronic products), plus the over-falling real estate leaders, state-owned enterprise leaders (China Special Valuation), securities mergers and acquisitions, etc., are all worth paying attention to.

16. 2023 is the year with the most retirees since 1949, and 2024 is the second year with the second most retirements. A gradual extension of the statutory retirement age may be piloted, but it is unlikely to be fully implemented in 2024.

17. For most of 2024, the exchange rate of the RMB against the US dollar will stabilize around 7.1 to 7.2. There will be a slight appreciation in the second half of the year, and a return to within 7 cannot be ruled out. The main factors that affect the exchange rate are Sino-US relations and China's foreign exports.

18. New steps will be taken in opening up to the outside world, with the goal of further integrating into the international cycle and consolidating the fundamentals of foreign trade and foreign investment. The path is to "benchmark against international high-standard economic and trade rules" and strive to join the CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership) and DEPA (Digital Economy Partnership Agreement). The central government's "80 Articles" to support Shanghai's comprehensive alignment with international economic and trade standards have been issued, including "reform of state-owned enterprises", "protection of workers' rights and interests", "environmental protection", "protection of intellectual property rights", "reform of government procurement" and other provisions.

19. The US dollar will enter a cycle of interest rate cuts in 2024. The first interest rate cut may occur around May, which is good for the global economy and the Chinese economy. As the US dollar interest rate peaks, the inversion of interest rates between China and the United States will also peak, and there will be international hot money flowing back to Hong Kong stocks, A-shares and Chinese bond markets. The Fed is likely to cut rates by 50 to 75 basis points in 2024. 2024 is an election year in the United States, and the relationship between China and the United States faces new uncertainties.

20. As the expectation of the Fed cutting interest rates becomes stronger and stronger, precious metals and cryptocurrencies will be extremely active in the first half of 2024. However, central banks will gradually halt their efforts to increase their holdings of gold in the first half of 2024.