The country is not the driving force of global growth it once was, but it still plays an important role in the global economy. Our forecast is for Chinese real GDP to expand by 4.5% in 2024, down from our expectation of 5.3% growth in 2023. The property sector’s problems look set to last well into 2024, although the worst of the contraction in the housing market looks to be over, with concerns about a Japan-style asset price collapse so far not materialising.

Trend growth is slowing; we see 4.5% growth in 2024

China is still a crucial part of global manufacturing supply chains, and its status as an exporter remains significant. According to IMF data, China’s 15% share of global exports is almost 1.7 times that of the US, 2.1 times that of Germany, or 6.5 times that of the UK. Global supply chains have in recent years started to diversify away from China, but only at a very gradual pace, and China’s colossal manufacturing exporting capacity looks set to remain important for years to come.

The “new energy” segment in China deserves considerable attention. Areas such as batteries and electric vehicles are among the higher value-added industrial sectors targeted by the government’s attempts to upgrade the country’s industry, dating back to 2015’s “Made in China 2025” policy. These sectors are under increased scrutiny from abroad, with the European Union (EU) beginning to probe Chinese electric vehicle exports and the US introducing the Inflation Reduction Act – not-so-subtle attempts to reduce China’s market share in these areas. From the Chinese government’s perspective, they will remain high-priority growth sectors: the authorities’ aim is for electric vehicles to account for 20% of all new vehicle sales by 2025, for instance.

The Chinese consumer is unlikely to provide a major boost to the Chinese or global economies in 2024. The current backdrop doesn’t look conducive to a boom in consumption – falling property prices are still having a sizeable negative impact on wealth, given that over 60% of household wealth in China is invested in property. Our analysis of the data also highlight that household disposable income growth is lower than the 2015–19 average, while domestic retail sales are now around 10% below the 2010–19 trend. And for the global economy, the weak renminbi isn’t particularly encouraging for Chinese tourists to spend overseas, either.

Private consumption’s share of GDP is still lower than investment, with no sign yet of a pivot to the consumer

Beyond 2024, signs point towards slowing long-term growth in China. That’s because the country’s growth model is evolving: as its economy grows and becomes more sophisticated, the returns from investments in land, capital and labour diminish. Raising productivity and increasing innovation are more difficult than building factories or bridges, while an ageing society points to a shrinking workforce.

Portfolio flows into Chinese assets have been weak in 2023, failing to respond to a bottoming in the economic data, policy support, positive real yields in bonds or even improvements in US-China relations. 

Between January and September 2023, foreign investors pulled out a net $31.7bn from Chinese sovereign bonds – a far cry from the years of almost uninterrupted inflows since tracking began in 2014.

We think the bar for foreign investors to re-engage with China’s FX, bond, and equity markets in 2024 looks high as their concerns about the country are likely to linger. Foreign business sentiment has quickly eroded, with surveys in 2023 highlighting the growing challenges of doing business in China. The potential for armed conflict or sanctions-related risk between China and the western world have increased since Russia’s invasion of Ukraine. What’s more, the US’ hawkish stance towards China is likely to continue regardless of who resides in the White House come 2025. 

The renminbi’s weakness in 2023 has been almost entirely due to external factors rather than developments in the domestic economy, and we believe outside influences will continue to hold sway next year. Much of 2023’s weakness has been due to interest rate differentials, so any rebound in the renminbi is likely to require a weaker US dollar. China’s current account surplus due to its sizeable exports hasn’t supported the renminbi this year, and the currency’s prospects are likely to stay closely linked to the US dollar’s dynamics (so long as China remains an export-oriented economy that invoices primarily in US dollars). 

What might trigger an upturn for Chinese assets in 2023? Some good news is needed. Confirmation that China’s growth has bottomed, that stimulus is feeding through into the economy, and less restrictive global financial conditions linked to Fed policy could help trigger such a development. But given the direction of travel in geopolitics, monetary policy and the economy, we’re not too optimistic.  

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