It's time to take stock of the old year and look forward to the new year, which is a regular action at the end of each year, but this year seems to have some special significance. Looking back on 2023, although the mainland's economy is macro improving, and the annual GDP growth rate in 2023 is expected to exceed 5%, due to the existence of the temperature difference between macro data and micro feelings, the market's pessimistic expectations for the macro economy have always existed.
There is a saying that pessimists are often right, but optimists are often successful. No matter how correct the pessimistic expectations are, we still need to find solutions to the problems and arrange our investments and lives with an optimistic attitude. Looking forward to 2024, it is very necessary and important to analyze the momentum of China's economic development to stabilize expectations and arrange investment layout.
Looking back on 2023: a year of separation between expectations and reality, macro and micro
From "strong expectations, weak reality" to "weak expectations". In the first quarter, production and demand were released intensively after the epidemic, and GDP grew by 4.5%. This also doubles the market's confidence in the economic recovery, and high hopes for the economy in 2023. In the second quarter, the scarring effect appeared, and the margin weakened. Compensatory production, demand ebbed, and GDP grew by 6.3%. The economy was generally running at a low level, with GDP growing by 0.8% QoQ in the second quarter. In the second half of the year, market confidence was hit by "weak realities" and expectations weakened. In the third and fourth quarters, the baton was taken over vividly, and the economy gradually picked up. In the third quarter, the economic data increased by 4.9% year-on-year and 1.3% month-on-month, and the economic data in August was generally warmed up after the extreme weather disturbance in July. GDP growth for the full year is expected to be 5.4% due to the low base effect in the fourth quarter.
In terms of consumption, the rapid rebound in service consumption has become the main driving force for economic growth. In the first three quarters, final consumption expenditure contributed 83.2% to economic growth, driving GDP growth by 4.4 percentage points. Final consumption expenditure contributed 94.8% to economic growth in the third quarter. In the first three quarters, the total retail sales of consumer goods increased by 6.8% year-on-year, and the retail sales of services increased by 18.9%. At the end of September, the cumulative value of catering revenue and retail sales of goods was 3.7 trillion yuan and 30.5 trillion yuan, respectively, and the cumulative year-on-year decline decreased to 18.7% and 5.5%, respectively.
In terms of investment, real estate and private investment were the drag on the decline in total investment, while manufacturing and infrastructure were the bright spots. In the first three quarters, the cumulative value of fixed asset investment increased by 5.1%, 4.2% and 3.1% year-on-year respectively, the manufacturing industry increased by 6.3% year-on-year and infrastructure investment increased by 5.8% year-on-year from January to November, both higher than the overall growth rate of investment by 2.9%, and the cumulative investment in real estate development increased by -9.4% year-on-year. At the end of November, the cumulative year-on-year decline in private investment narrowed to -0.5%.
In terms of exports, the overall external demand is weak, and the "Belt and Road" and new energy vehicles have become new highlights of countries and categories respectively. In the first quarter, the mainland's imports and exports performed well as a whole, which was better than market expectations, but in the second quarter, they began to decline. The total value of imports and exports at the end of September was RMB30,802.1 billion, with a cumulative year-on-year growth rate of -0.2%. In terms of countries, in the first eight months of this year, the mainland's imports and exports to 152 "Belt and Road" countries reached 12.62 trillion yuan, a year-on-year increase of 3.6%, accounting for 46.6% of the mainland's foreign trade. In terms of categories, new energy vehicles, lithium batteries, and solar cells continued to grow rapidly under the background of last year's high base. At the end of November, the mainland exported a total of 1.6 million new energy vehicles, a year-on-year increase of 87%. In the first 10 months, exports of new energy vehicles, lithium batteries, and solar cell products increased by 41.7% year-on-year.
The troika is showing a trend of driving high and going low and then going up, which also corresponds to the 724 Politburo meeting's statement that "after the smooth transition of epidemic prevention and control, economic recovery is a process of wave-like development and tortuous progress." Assertions. At the same time, the monetary sector also showed a trend of first strengthening and then weakening and then recovering.
The PMI is still below the boom and bust line. In the first quarter, the overall performance of the PMI of various industries in mainland China was good. The manufacturing PMI index recovered to 50.1 in January, expanded further to 52.6 in February, reaching its highest level in nearly a decade, and edged down to 51.9 in March. In the second quarter, the PMI of all industries showed a downward trend. Among them, the manufacturing PMI fell more sharply, from 51.9 to 49.0, returning to below the boom and bust line, and the construction and service PMIs also fell in June at 55.7 and 52.8, respectively. In the third quarter, the PMI of the mainland's manufacturing and construction industries stabilized and rebounded, and the PMI of the service industry rebounded. The manufacturing PMI fell slightly to 49.4 in November, still below the boom and bust line, but the magnitude was manageable. The construction and service PMI fell to 55 and 49.3 respectively, and the construction industry rebounded significantly under the continuous release of favorable policies.
PPI has been running at a low level throughout the year, but the inflection point has emerged. After reaching a year-on-year high of 13.5% in October 2021, PPI has started a downward cycle. In June 2023, the PPI bottomed out (-5.4%) YoY and began to recover, with the PPI turning positive MoM in August and narrowing the YoY decline to -3% in November.
On the fiscal side, the growth rate of fiscal expenditure is lower than the growth rate of fiscal revenue, which means that there is still room for fiscal policy. From January to November, the national general public budget revenue was 200131 billion yuan, a year-on-year increase of 7.9%. Among them, the tax revenue was 16,842.0 billion yuan, up 10.2 percent year-on-year, and the non-tax revenue was 3,171.1 billion yuan, down 3 percent year-on-year. In terms of central and local revenues, the central general public budget revenue was 9,169.2 billion yuan, up 6.9 percent year-on-year, and the local general public budget revenue at the same level was 108439 billion yuan, up 8.7 percent year-on-year. From January to November, the national general public budget expenditure was 238462 billion yuan, a year-on-year increase of 4.9%. In terms of central and local expenditures, the central general public budget expenditure at the same level was 3,329.5 billion yuan, up 5.8 percent year-on-year, and the local general public budget expenditure was 205167 billion yuan, up 4.8 percent year-on-year.
Overall, in 2023, the economy as a whole will maintain a recovery trend, but there are structural deviations, which also makes the performance of macro data not implemented in the experience of micro subjects, which will also exacerbate the pessimistic expectations of the market, in order to reverse the pessimistic expectations, it is necessary to analyze the economic momentum in 2024 and look for structural opportunities.
Looking ahead to 2024: Stabilize old drivers and nurture new ones
For next year's economic work, the Central Economic Work Conference in December proposed to "seize all favorable opportunities, take advantage of all favorable conditions, see the right to do it, do more if you can", which shows that the demand for growth at the policy level has risen, and the tone is set "next year we must adhere to the principle of seeking progress in stability, promoting stability with progress, establishing first and then breaking, and more policies that are conducive to stabilizing expectations, stabilizing growth, and stabilizing employment", which means that stability is required in the old kinetic energy, and at the same time will "lead the construction of a modern industrial system with scientific and technological innovation" Placing it at the top of the nine major tasks shows that actively cultivating new momentum and accumulating strength for long-term economic growth is still the top priority.
Under the deployment of the Central Economic Work Conference, the momentum of economic growth can be divided into policy demands, old momentum represented by real estate, and new momentum represented by the digital economy.
In terms of policy demands, the internal and external situation has evolved, and the demand for active growth has risen, and economic construction has been re-proposed. According to the analysis of the research report of China Securities Construction Investment, since 2020, the GDP of the mainland has been lower than the potential level for four consecutive years, and the huge output gap has made the overall level of financial risks passively rise, and the contradictions in the fields of local bonds, small and medium-sized financial institutions, and real estate are prominent, all of which need high economic growth to resolve. Development is still the foundation and key to solving all problems on the mainland, and the importance and urgency of maintaining a reasonable growth rate has markedly increased. In 2022, China's GDP accounted for 70.5% of the United States from 76.4%, and in 2023, the post-pandemic recovery will be slow, and the GDP gap will widen again. Under the evolution of the domestic and international situation, it is expected that there will be more and more heavyweight stable growth policies to ensure that the economic growth target in 2024 reaches a high level of about 5%.
Under the government's initiative to ensure growth, the old momentum is still the most effective starting point in the short term. In 2023, the central and local governments have made many policy adjustments to real estate, but due to the sluggish growth of residents' income, the reduction of real estate financial value-added attributes, and the difficult delivery of new real estate, residents are reluctant to increase leverage to buy houses, and the recovery of the industry is still not optimistic. The Central Financial Work Conference proposed to speed up the construction of "three major projects" such as affordable housing, namely affordable housing, urban village renovation and "level-emergency dual-use" public infrastructure construction, the three major projects are expected by the policy to place high hopes, and it is also an important starting point to fill the decline in real estate investment, China Securities Construction Investment Research Report predicts that under the further relaxation of financing policies and the large-scale launch of the three major projects, the growth rate of real estate investment in 2024 is expected to narrow to -5.2%.
Under the proactive fiscal policy, the fiscal deficit ratio has risen to a record high, and infrastructure investment is expected to accelerate. On October 20, the Standing Committee of the National People's Congress approved the issuance of an additional 1 trillion yuan of treasury bonds for eight major areas, including flood control projects. On December 18, the first batch of capital budgets for the issuance of additional 1 trillion yuan of treasury bonds by the central government has been "landed". According to the list of the first batch of projects for the issuance of additional treasury bonds, the Ministry of Finance has issued the first batch of capital budget of 237.9 billion yuan. The 237.9 billion yuan issued this time includes 107.5 billion yuan of subsidy funds for post-disaster recovery and reconstruction and improvement of disaster prevention and mitigation capabilities, 125.4 billion yuan of subsidy funds for high-standard farmland construction in Northeast China and Beijing-Tianjin-Hebei disaster-stricken areas, and 5 billion yuan of subsidy funds for the construction of key natural disaster comprehensive prevention and control system (meteorological infrastructure project construction).
With the gradual landing of trillions of national bonds, China Securities Construction Investment is expected to promote the growth of the physical workload of infrastructure investment in 2024, and the growth rate of infrastructure investment is expected to rise to about 8.7%.
The growth rate of corporate profits has turned positive, which is expected to drive the recovery of manufacturing investment. Since August 2023, with the marginal improvement in demand and the recovery of prices, the year-on-year growth rate of profits of manufacturing enterprises has turned positive in the month. From the law of historical data, corporate profits lead investment for about a year, since the third quarter of this year, the manufacturing profit cycle has improved, although there are twists and turns but has ended the downturn, the future on the one hand, investment, consumption, exports and other demand to pick up, on the other hand, PPI improvement, considering the low base in 2023 and the economic repair in 2024, PPI year-on-year will turn from negative to positive, is expected to be around 0.8% before 2024. The rise in volume and price will drive the profits of manufacturing enterprises to further recover, which is expected to lead the recovery of manufacturing investment to about 8.2% in 2024.
Residents' disposable income continued to recover, and their ability to pay and willingness to demand improved somewhat. Since the second and third quarters, as the impact of the epidemic has weakened significantly, employment in the residential sector has continued to improve, and the surveyed urban unemployment rate in September and October has fallen to 5%, which is lower than the level of the same period in 2019, and the per capita disposable income of residents has grown faster than nominal GDP in the second and third quarters, indicating that the residential sector has recovered faster than the government and enterprises, especially wage income and operating income have achieved higher growth, and the cash flow statements of wage earners and self-employed people have improved significantly after the epidemic. The index of propensity to consume, measured by the ratio of household consumption expenditure to disposable income, also reached the highest level in the same period of recent years. CITIC Securities expects that the total amount of social security in mainland China will achieve a growth of 5.2% in 2024, showing a marginal improvement in the growth rate of commodity consumption and the continuation of rapid growth in service consumption. China Securities Construction Investment is more optimistic, and it expects the growth rate of social zero to reach about 6.4%. At the same time, price factors will also improve. China Securities Construction Investment expects the CPI to be around 1.6% year-on-year in 2024.
In terms of import and export, CITIC Securities believes that major overseas economies have entered the stage of replenishing inventory, which will drive China's export growth into an upward range in 2024; At the same time, in recent years, the scale of mainland direct investment in the Belt and Road countries has increased rapidly, forming a certain "export creation" effect. In addition, the GDP growth rate of emerging economies such as ASEAN, Latin America, and Africa is higher than that of developed countries, and their release of demand will provide strong support for the mainland's export growth to rebound in 2024.
With the rise of China's position in the global value chain division of labor system, the continuous optimization of the structure of export commodities, and the enhancement of international comparative advantages and bargaining power, China's share of the global export and trade surplus has generally shown an upward trend. CITIC Securities expects the growth rate of mainland exports to be about 2% in 2024.
To sum up, it is expected that in 2024, the economy will move forward in twists and turns along the pace of recovery in 2023, and the investment, consumption, and export parts that will perform well in 2023 will still perform well, while fiscal policy will play a role as a stabilizer to ensure stability in the parts that do not perform well. As for the new momentum for progress, stable policy expectations and a better business environment are needed to enhance the confidence of the industry and stimulate the vitality of innovation, which means that the policy level needs to continue to promote the "reform" in 2024.
(This article was first published in Titanium Media App, author|Liu Yangxue)
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