China’s Economy Hit Target with 5.2% Growth in 2023
Ever since easing of Covid restrictions, China's economy has been experiencing a consistent but uneven recovery. According to China Briefing, China’s GDP grew by 4.5 percent in the first quarter of last year. However, it still falls short of the government’s target of achieving 5% GDP growth for 2023.
To counter this, the Chinese government implemented stimulus strategies aimed at stimulating economic development. These measures include reducing interest rates for loans and mortgages. Additionally, they have also decreased down payment requirements.
Although China’s Premier Li Qiang announced in the recent World Economic Forum that China’s economy expanded to 5.2% in 2023, which was a slight improvement from 4.9% in Q3. However, Reuters reported that the improvement might be because of COVID disruptions in Q4 2022 affecting the comparison base.
Reuters also mentioned that when considering other economic data, the overall picture is mixed. It does not entirely align with a decrease in the previous quarter. Although the GDP figures show some improvement, they think the data suggest a recent small increase in momentum. This leaves the recovery of China’s economy uncertain, posing some challenges.
Reasons Why China’s Economy Is Struggling
According to Business Insider, there are four main reasons why China might be facing below-trend growth in 2024.
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Pent-Up Demand Will Decline
While China experienced a notable increase in consumption during the third quarter, but this was primarily fuelled by pent-up demand. Experts expect this surge to subside in the coming months.
According to Business Insider, Chinese citizens are concerned about their financial situation and job stability. As a result, they have chosen to save their money instead of spending it, leading to a decrease in consumer spending.
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The Downturn in The Real Estate Market Will Continue to Persist
Last year, many prominent Chinese property developers faced significant financial problems and some even went bankrupt. Government efforts to make the real estate sector stable have not been successful.
According to the Business Insider, the downturn in the real estate market is not merely a temporary setback but rather a structural issue that is likely to endure.
Chinese households, it notes, have lost confidence in property as a reliable avenue for wealth accumulation. The report says it is hard to predict when the real estate sector will stabilize. But when it does, it will not return to its previous role as a primary driver of economic growth.
Business Insider believes that the real estate market has not reached its lowest point. Additionally, people expect the Chinese government to face challenges in enticing them to purchase houses once again.
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Foreign Demand for Chinese Products May Decline
China may suffer from a global economic slowdown because of recessions in the US and Europe. China's manufacturing exports may decrease more because of the ongoing global downturn, as reported by Business Insider.
Business Insider emphasized that China cannot rely on exporting its way out of the aggregate demand predicament created by the ongoing downturn in its real estate sector. This assessment indicates a challenging road ahead for China's economic prospects as it grapples with the broader impact of a global economic slowdown.
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Beijing Cannot Implement Major Stimulus, Only Incremental Measures
China's economy could face disaster if they make major changes or spend excessively, warns Business Insider. Making drastic changes or injecting a large amount of money into the economy could have negative consequences. This situation poses a risk for China's economic stability.
Business Insider recognizes the need for policies to boost credit and investments but emphasizes the importance of balance.
The government has not implemented a wide-ranging stimulus package. However, they have taken steps to address specific issues. These issues include flood recovery and disaster prevention. They have done this through monetary and fiscal measures.
Consequently, while the robust recovery observed in the third quarter of 2023 is expected to fade, it is anticipated that growth in 2024 will likely maintain stability.
Has China Ramped Up Stimulus Enough to Save China's Economy?
According to CNBC, expectations for more support from China to boost its economy and stock markets are rising— especially after the central bank’s easing announcements on Wednesday.
South China Morning Post reported that the People’s Bank of China (PBOC) has announced a 50 basis points reduction in the reserve requirement ratio (RRR) for banks, releasing 1 trillion yuan ($139.8 billion) in long-term capital.
This move is aimed at injecting more liquidity into the financial system, enabling commercial banks to increase lending, and stimulating China economy growth. The decision follows a quarter-point cut in September and is seen as a measure to calm market concerns and stabilize stock prices.
The report suggests that recent announcements by the People's Bank of China (PBOC) indicate a shift in policy approach. Previously, the central bank's actions were seen as reactive and fragmented. Now, investors expect more proactive and comprehensive measures, and they will closely watch for additional signs of policy support.
Beijing has been reluctant to embark on massive stimulus, which would also widen the yield gap between China and the U.S. given the Federal Reserve’s tighter stance on monetary policy. The PBOC kept a benchmark lending rate unchanged again on Monday, holding pat on loan prime rates.
This announcement by the People's Bank of China (PBoC) might be a signal that the PBoC and top policymakers are increasingly concerned about the ongoing economic downturn and recent equity market performance. This highlights the importance of stabilizing the property market for sustained improvement in developer financing, emphasizing the need for additional policy efforts.
Real estate troubles are just one of several factors that have weighed on Chinese investor sentiment. The massive property industry has dragged down growth, and along with a slump in exports and lackluster consumption, kept the economy from rebounding from the pandemic as quickly as expected.
Although stocks turned higher after a series of government announcements and media reports, indicating forthcoming state support for growth and capital markets, a fundamental turnaround in the economy is needed for investors to return to Chinese stocks, and this will take time.
“Ultimately what is going to get fundamentals back on track is meaningful improvement in confidence and sentiment – which is why recent measures have been designed to give confidence a boost,” said David Chao, global market strategist for Asia Pacific (ex-Japan) at Invesco in South China Morning Post’s report.
“The road forward to economic normalization lies in the wallets of Chinese households and businesses and less so in China’s stimulus toolkit,” he told CNBC.
Trading Into China Market
QFI China and Internationalized Products
Introduced in 2013, the Qualified Foreign Investor (QFI) is a collective regime that includes Qualified Foreign Institutional Investor (QFII) and RMB Qualified Foreign Institutional Investor (RQFII) schemes, which merged into one.
The merger and relaxed China QFII rules make it easier for foreign traders to apply and invest in China's trading market. This one-time application comes with relaxed entry criteria and simplified application documents. All these also comes with a reduced approval time once the application documentation fulfils China Securities Regulatory Commission (CSRC) requirements.
The QFI scheme allows foreign investors to trade commodity futures, commodity options, and stock index options. Find out the 3 Reasons To Invest in China and QFI China Scheme.
How to Trade in the China Market?
Figure 1. Source: Orient Futures Shanghai: Ways to Access China Futures Market
Access to China’s Futures market has been made more accessible with the diversification of schemes. As shown in the above diagram from Orient Futures Shanghai, traders can choose to trade through overseas intermediaries (Orient Futures Singapore), QFI China (Qualified Foreign Investor) schemes, or PFM WOFE. Currently, there are 14 futures and 9 options available in the internationalized product schemes, 27 futures, and 19 options available in the QFI scheme.
Trading Commodity Futures in the China Market
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Figure 2. Source: Orient Futures Shanghai Webinar: How to Participate in Trading Internationalised Products.
International traders can trade QFI and China Internationalised products through Orient Futures Singapore. Being an Overseas Intermediary of Shanghai International Energy Exchange (INE), Dalian Commodity Exchange (DCE), and Zhengzhou Commodity Exchange (ZCE), Orient Futures Singapore have direct access to trading, clearing, and settlement to Futures and Options products from China.
These QFI and internationalised products from China include Soybeans Futures, Rapeseed Oil Futures, Crude Oil Futures, and more.
Start Trading With Orient Futures Singapore
Being an Overseas Intermediary of Shanghai International Energy Exchange (INE), Dalian Commodity Exchange (DCE), and Zhengzhou Commodity Exchange (ZCE), when foreign clients participate in internationalised futures contracts in these Chinese markets with us, they have direct access to trading, clearing, and settlement. Our parent company, Shanghai Orient Futures, is the largest broker in terms of aggregated volume across the five regulated exchanges in China.
Orient Futures Singapore also currently holds memberships at the Singapore Exchange (SGX), Asia Pacific Exchange (APEX), and ICE Futures Singapore (ICE SG). Starting August 2023, corporate clients can also gain access to the B3 Exchange through us.
We provide bespoke services to our professional clients, tailored to their corporate and individual needs. Our team will be there for you 24 hours on trading days to provide a one-stop portal for all your trades, with simple processes and an intuitive user interface that has low or near-to-zero latency.
