Nation remains a key engine for world economy despite uncertainties in 2024
Published: Jan 04, 2024 08:59 PM
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The skyline of Lujiazui in Shanghai Photo: CFP

The skyline of Lujiazui in Shanghai Photo: CFP

Editor's Note:

China's economy experienced a steady rebound in 2023, exceeding international expectations. In the face of an unstable world economy, China persisted in seeking progress while maintaining stability. While properly preventing and tackling risks, China continues to move forward with its economic recovery. In the process, it keeps deepening reforms and expanding opening-up. New growth drivers and competitive advantages are continuously emerging. This year, with the introduction of more support policies, China's economy is expected to maintain stable and positive momentum. The Global Times invited two Chinese economists to discuss the economy's opportunities in 2024.

Despite considerable difficulties, the global economy in 2023 achieved several important goals, including a moderate growth and containing inflation. Global GDP growth in 2023 largely exceeded initial expectations, and the performance of most economies was better than originally forecasted.

Looking ahead to 2024, this improvement is likely to continue. In 2023, the supply-demand balance in the labor market was stabilizing, with a decrease in job vacancies and no significant increase in unemployment rates. The job vacancy rates in the world's other major economies remain elevated compared with the levels implied by economic fundamentals, indicating further room for improvement.

Inflation is expected to spiral down in 2024. Since the end of 2022, the core inflation rates of all G10 economies, except for Japan, have dropped from 6 percent to around 3 percent. Central banks have completed most of the adjustments to control inflation, and nominal wage growth has started to slow down. Therefore, the possibility of a resurging inflation in 2024 is low.

In an environment of lower inflation and a strong labor market, disposable income in developed markets is expected to significantly increase. However, just like the divergence between Europe and the US in 2023, the divergence in 2024 will still be evident, albeit with reversed positions. It is projected that the real income growth in the US, which was 4 percent in 2023, will slow down, while the Eurozone and the UK will have more room for real income growth as the impact of Russian gas supply shock subsides. 

Additionally, as inflation stabilizes, monetary policy tightening will gradually be phased out. Although they will still have an impact on GDP growth in the first half of the year, the drag on the economy will be smaller than in 2023. If the growth outlook is unfavorable, interest rate cuts may become a policy option. Several emerging markets that started raising interest rates earlier have begun to lower policy rates and may continue to do so this year.

The manufacturing sector is expected to recover from a slump in 2023. The export of goods from major exporting countries such as the US, Japan, South Korea, and Southeast Asia significantly contracted in last year, and the World Bank predicts that global trade growth rate in 2023 will reach 1.7 percent, much lower than the 6 percent in 2022. In the second half of 2023, global trade begins to slowly rebound, and the export growth rates of the US, Japan, South Korea, India, and Vietnam all turn from negative to positive. In 2024, global trade growth is likely to follow a moderate growth pattern.

In 2023, China successfully navigated many external headwinds, overcame internal challenges and made progress in deepening reform and opening-up. The country also implemented effective macroeconomic regulations, prioritized the expansion of domestic market demand, optimized economic structure, instilled confidence, and effectively managed and resolved risks. The economy experienced a strong rebound in 2023.

The Organization for Economic Cooperation and Development (OECD) has raised its growth estimate for China's economy in 2023 to 5.2 percent, while the IMF has increased it to 5.4 percent. Several financial institutions, including Morgan Stanley, Goldman Sachs, Citigroup, UBS, Deutsche Bank and ANZ, have also raised their growth estimates to 5-5.7 percent. This indicates that China remains a major driving force for economic growth in the Asia-Pacific region and the world. 

In 2023, China's economy underwent a structural transformation and upgrade, with home consumption showing an impressive growth among the three major driving forces. Despite the time lag effect for the recovery due to the lingering effects of the COVID-19 pandemic, in-person consumption and services consumption rebounded relatively quickly. Also, new types of consumption and consumption upgrades, such as digital and green sector explorations, cultural tourism and sports, maintained strong momentum.

From the perspective of exports, the "new three items," namely electric vehicles, solar panels, and lithium batteries are becoming the new growth drivers for China's exports. Sales of these products are booming, which is the result of China's technological innovation and industrial optimization and upgrading. 

As the only country that has all categories in the UN industrial classification system, China has a complete range of industrial products and well-established industry and supply chains required for producing the "new three items." With China's continuous role in innovation leadership and the deepening of its green transformation, high-tech industries are injecting new momentum into China's economic growth.

China's manufacturing sector has shown strong recovery momentum, as the inventory is consistently thinned. Industrial production has entered the "inventory replenishment" stage.

From an investment perspective, the development of emerging service industries has become a new force in addition to manufacturing, infrastructure and exports. The proportion of high-tech services industries in fixed-asset investment is only slightly lower than that of real estate. The high-tech services industry has maintained steady growth, which is not only beneficial for optimizing the nation's investment structure but also for the further transformation and upgrading of the manufacturing sector.

From the perspective of economic and trade relations, the relationship between China and the US is being stabilized, while China's economic and trade relations with emerging markets continue to strengthen. In the first eight months of 2023, the proportion of exports to emerging and developing economies in China's total exports rose from 25 percent in 2007 to 44 percent. Amid the complex global situation, this further enhances the resilience of China's economic cooperation.

In preventing and tackling risks, some provinces in China have issued special-purpose refinancing bonds worth nearly 1.5 trillion yuan ($210 billion) since October 2023. The funds raised are primarily used to repay outstanding debts owed by local governments to enterprises. The issuance of these special-purpose refinancing bonds signifies a new stage in the prevention and resolution of local government debt.

International financial institutions such as UBS and Goldman Sachs generally predict that emerging markets will experience a rapid rebound this year, with the important driving force being the development of the Chinese economy.

In 2024, with the implementation of a series of policy measures by the Chinese government and the growth of private-sector investment, the economy is expected to further gain pace to expand. China's economy will maintain medium- to long-term growth, and the government will ramp up efforts to stabilize growth, providing support for the economy. 

In 2024, the green economy, digital economy and intelligent economy will become the new "three engines" driving growth, while consumption upgrading will also quicken its pace, potentially boosting economic growth. With the weakening of the US dollar and intensified policy measures, the vitality of the Chinese economy will be unleashed fully, and economic growth will gradually return to normal.

In 2023, the global economy faced a spate of turbulences. In 2024, instability, uncertainty and unpredictability may become the new normal. Political turmoil brought about by multiple national elections is bound to affect the global political and economic landscape. 

The upcoming US election could bring uncertainties to the pace of the global economic recovery. Europe is confronted with the dilemma of regional conflicts and an energy transition, facing the difficult choice between inflation and deflation, and lowering interest rates or maintaining at the present levels. The outlook remains highly uncertain.

In the face of this complex and ever-changing international situation, China will continue to implement strategic initiatives, adhere to bottom-line thinking, calmly respond and focus on its own affairs. China will respond to the uncertainty of external environmental changes with its own certainty.

The author is an economist and professor at the Belt and Road School of Beijing Normal University.