In the first quarter, the mainland's GDP exceeded 29 trillion yuan, a year-on-year increase of 5.3%, achieving a good start. Among them, the performance of industrial and export data exceeded expectations, consumption and investment are recovering steadily, and the employment situation is generally stable. However, the real estate market was still on a downward trend in the first quarter, the overall price performance was sluggish, and the foundation for economic recovery was not solid.
How do we view the economic performance in the first quarter? Why did exports exceed expectations in the first quarter? How to promote the stable operation of the real estate market? How to promote the faster recovery of consumption? Is the RMB exchange rate facing depreciation pressure? What is the expected economic performance for the whole year? With these questions in mind, the 21st Century Business Herald reporter interviewed Zhu Haibin, chief economist of JPMorgan Chase China.
Zhu Haibin. Data map
The economy as a whole got off to a good start in the first quarter
21st Century: How do you view China's economic data in the first quarter, and what is the current state of China's economic operation?
Zhu Haibin: Judging from the macro data in the first quarter, it can be said that it is off to a good start. The economy grew by 5.3% year-on-year in the first quarter, laying a good foundation for achieving the annual target of about 5%.
Specifically, the economy in the first quarter showed the following characteristics.
First, the monthly data fluctuates significantly. The economic data in January and February exceeded expectations, and the data in March fell significantly.
Second, the strength in the first quarter was mainly due to industrial production. In the first quarter, the added value of industry increased by 6% year-on-year, and the added value of services increased by 5% year-on-year, both of which performed well, but industrial performance was better. Exports were strong in the first quarter, advanced manufacturing including information industry, new energy, green industry and other rapid development, large-scale equipment renewal and other manufacturing investment in the first quarter increased by nearly 10% year-on-year, which is an important factor to support the strong start of the industry.
Third, the recovery of consumption is within the normal range, and there is no performance beyond expectations. The total retail sales of consumer goods in the first quarter increased by 4.7% year-on-year, and considering the factors of the Spring Festival holiday, it can be said that the overall performance is decent.
There are also concerns about the economic performance in the first quarter. At present, real estate is still in a downward channel, real estate transaction volume, housing prices, etc. are still on the downside, and real estate is still a major obstacle to economic recovery. In addition, prices were relatively sluggish in the first quarter, especially the PPI continued to contract, and the GDP deflator was about -1.1%, which increased the downward pressure compared with the previous two quarters.
Price factors have led to the improvement of export competitiveness
21st Century: China's exports were better than expected in the first quarter, and the WTO raised its forecast for the growth of global trade in goods. How do you view the current situation of China's exports, and what are the prospects for future exports?
Zhu Haibin: In the first quarter, exports denominated in US dollars increased by 1.5% year-on-year, and the growth rate of export volume was much higher than the growth rate of export value. Taking the export data of January ~ February as an example, the export value in January ~ February increased by 7% year-on-year, of which the export volume increased by about 20% year-on-year, and the export price fell by about 13% year-on-year. As a rough estimate, exports in the first quarter increased by nearly 15% year-on-year, and the export performance was very strong.
There are several factors behind the strong exports.
First, the global economy, including the United States and Europe, performed better than expected in the first quarter, and global terminal demand was improving. According to JPMorgan Chase & Co., the global economy may grow at an annualized rate of more than 3% in the first quarter, better than the 2.6% annualized growth rate in the fourth quarter of last year.
Second, China's export prices have fallen sharply, and its export competitiveness has been markedly enhanced. Recently, the focus of major developed countries in Europe and the United States is on high interest rates, high inflation, and high wage growth, and their production costs are rising significantly. At the same time, China's export prices have fallen, which has further amplified product competitiveness, which in turn has contributed to a significant increase in export volumes.
Third, China's strategy of increasing export diversification and diversification has achieved some results. Before 2017, China's exports to Europe, the United States and Japan accounted for 40%, and in 2023, the share will fall back to about 33%. At the same time, the share of emerging markets is increasing, such as the proportion of exports to ASEAN has increased to 3~4 percentage points, and the share of exports to the "Belt and Road", Africa, Latin America, and Russia is also rising.
Fourth, China's export products are becoming more and more mid-to-high-end. In recent years, the export share of solar cells, lithium batteries, and new energy vehicles has risen to 6.5% in 2023, from only about 1% in 2017.
It is expected that dollar-denominated exports will increase by about 3 percent year-on-year this year, which is roughly the same as the WTO's expectation of a 3 percent increase in global trade, and China's export market share in the world is roughly the same.
From the perspective of global economic performance, the annualized growth rate in the first quarter exceeded 3%, but it may fall back to about 2% in the third and fourth quarters, so the external demand environment may weaken in the second half of the year. Recently, external regions, including Europe, the United States, Latin America and other regions, have launched anti-dumping and anti-subsidy investigations on China's export products, which has posed certain challenges to China's exports to these markets, and needs to be actively dealt with in the face of potential trade disputes.
The key to stabilizing the property market is to stabilize housing price expectations
21st Century: China's real estate investment and sales in the first quarter are still declining year-on-year, how do you view the current operation of China's real estate market, and how to better stabilize the real estate market?
Zhu Haibin: It can be said that the downward speed and time span of the real estate market have exceeded market expectations, and the real estate data in the first quarter is still worrying. New home sales fell nearly 28% year-on-year in the first quarter, and the area of completed housing fell by about 20% year-on-year, indicating that the current real estate market is still difficult.
I think that in order to stabilize the real estate market, we need to focus on two indicators.
The first is the house price. For many potential home buyers, if the downward trend continues, their rational choice is to wait and see, so short-term housing demand may be significantly lower than normal, which will also prolong the downward trend of the real estate market to a certain extent.
The second is new home sales data. If the data continues to decline, it will have a shock to developer liquidity. Recently, the data has fallen beyond the normal range, and the funds withdrawn by real estate companies have declined, and some real estate companies have unexpected financial difficulties, which will have a further impact on the market. Therefore, the key to stabilizing the property market is to stabilize housing price expectations and sales.
In this regard, I currently have two policy recommendations.
First, intensify the policy of stabilizing the property market. In the past year, real estate policies have been fine-tuned, including reducing the down payment ratio, lowering mortgage interest rates, and relaxing purchase restrictions in some cities. However, these policies continue the principle of "one city, one policy", and the gradual and small relaxation rhythm is similar to "squeezing toothpaste", which can be said to be not obvious in the short term, but may lead to a further narrowing of policy space. It is recommended to speed up the adjustment of real estate policies, and consider completely canceling purchase restrictions. It can be said that the era of real estate as an investment tool has passed, and even if the purchase restrictions are completely lifted in first-tier cities, it is unlikely that housing prices will rebound sharply. Even if there may be some rebound in housing prices in some cities, such as a certain rebound in first-tier cities with demonstration signals, this is a positive effect on stabilizing the current market sentiment.
Second, the "three major projects" (affordable housing, urban village transformation, and "peacetime and emergency" public infrastructure construction) are good starting points. The current real estate market is not only a cyclical downturn, but also a structural downturn. At present, the overall supply of real estate is oversupply, but there is also a structural mismatch - the demand for new housing in the middle and upper income classes is relatively stable, and there is still a huge demand for new urbanization such as migrant workers, so the supply of affordable housing and rental housing should be increased. In the medium and long term, multi-channel and multi-subject supply is an inevitable trend. Therefore, on the one hand, it is necessary to speed up the policy adjustment of the commercial housing market and promote the stabilization of the commercial housing market as soon as possible; on the other hand, the policy level should increase support for affordable housing and rental housing. At present, the government can concentrate on acquiring unfinished or undeveloped land and converting it into affordable or rental housing, which can both speed up destocking and ease the downward pressure on real estate investment.
Form a stable and predictable investment environment for the service industry
21st Century: How do you view the current recovery of consumption? What are the main reasons behind the relatively strong consumption of services but the relative weakness of consumption of goods? What are the policy suggestions for promoting consumption?
Zhu Haibin: The service sector grew by 5% in the first quarter, which is weak compared to the industrial growth rate (6%). Since the epidemic in 2020, the proportion of the service industry in GDP has been declining as a whole, which is in contrast to the situation in the decade of 2010~2020, when the growth rate of the service industry was higher than the overall GDP growth rate, and the proportion of the service industry continued to rise.
The decline in the proportion of the service industry in GDP is not only due to the impact of some service industries during the epidemic, but also because of the stricter regulatory policies of some service industries or certain changes in industrial policies, which has caused the growth rate of these industries to slow down or even contract.
At present, it is necessary to vigorously develop new quality productivity, or to promote sustained and stable growth in the medium and long term, not only to emphasize the innovation and upgrading of the manufacturing industry, but also to emphasize the innovation and upgrading of the service industry. The innovation and upgrading of the service industry is not only a breakthrough in science and technology, but also an innovation in business model, which is very important for improving total factor productivity. At present, the policy level is tilted towards the manufacturing industry to a certain extent, and the support for the service industry is relatively lacking. It is suggested that the industrial policy of the service industry should be appropriately adjusted to form a relatively stable and predictable environment, so as to stabilize the medium and long-term investment in the service industry, and at the same time, the high-level opening up of the service industry should be accelerated, and the innovation and upgrading of the service industry should be encouraged in the process of opening up.
It is expected that the annual economic growth rate will be "high before low"
21st Century: Recently, Asian currencies such as the yen and the South Korean won have depreciated, and there is also some depreciation pressure on the RMB. How do you view the subsequent trend of the RMB exchange rate?
Zhu Haibin: There is some depreciation pressure on the renminbi in the short term, but this is not an isolated case, for example, the yen is currently facing greater depreciation pressure, and the currencies of Southeast Asia are also depreciating, which are more affected by the US dollar. In recent months, inflation in the United States has continued to exceed expectations, and the market's expectations for the pace of interest rate cuts by the Federal Reserve have been greatly adjusted, and it is generally expected that interest rates will be cut 6~7 times this year at the beginning of the year, and now it will be reduced to 1~2 times. Recently, the US 10-year Treasury interest rate has risen again and the US dollar has re-strengthened, which is the main reason for the depreciation of Asian currencies.
For China, the economy grew better in the first quarter, and the macro fundamentals performed well. It is expected that the RMB will fluctuate slightly in the range of 7.2~7.3 during the year, and the RMB exchange rate is expected to remain relatively stable.
21st Century: What is the expected economic trend for the whole year?
Zhu Haibin: We expect the annual economy to grow by 5.2%, and we believe that after some efforts, we can achieve the annual growth target of about 5%.
Our forecast for China's economy is more from a quarter-on-quarter perspective, the economy grew by 1.6% quarter-on-quarter in the first quarter, equivalent to an annualized growth rate of more than 6.5%, and it is expected that the quarter-on-quarter growth rate will fall back to about 1% in the second half of the year, with an annualized growth rate of about 4%.
In terms of fiscal policy, it is expected to implement the policy measures identified in the government work report, including the issuance of 1 trillion yuan of ultra-long-term special treasury bonds and 3.9 trillion yuan of local special bonds, and the possibility of additional policies within the year is low. In terms of monetary policy, it is expected that there will be two 10 basis point rate cuts this year, and another RRR cut in the second half of the year. In addition, there is a possibility of strengthening structural monetary policy, such as collateral supplementary loan (PSL) financial support for the "three major projects".
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