Ep. 194: Liang Ding on Can China Avoid a Hard Landing
Dec 15, 2023
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Liang Ding, currency strategist, China economist, portfolio manager, and quant analyst, discusses the state of the Chinese economy in 2023, challenges faced by migrant workers, China's housing market shift, and the economic outlook for next year.
China's stimulus measures have focused on stabilizing growth and offsetting declines in the housing market, rather than large-scale infrastructure spending.
China aims to restructure its economy to be more consumer-led, but faces challenges due to cyclical and structural weaknesses in consumer spending, income distribution, social welfare, and housing affordability.
Deep dives
China's 2023 Economic Performance
China's economy in 2023 can be characterized by three key features. First, the opening-driven recovery was short-lived, with only one quarter of strong growth followed by lower growth rates. Second, there is an increasing divergence between output and demand, leading to a buildup of stock and potential price cuts. Third, export prices have declined, impacting the value of exports. The housing market has seen a correction due to structural changes, such as declining population growth and reduced housing demand since the peak in June 2021. The property sector has experienced defaults and faces uncertainties regarding the depth and duration of the correction. Overall, China's stimulus measures have focused on stabilizing growth and offsetting declines in the housing market, rather than a large-scale stimulus. The government aims to restructure China's economy to be more consumer-led, addressing cyclical and structural weaknesses in consumer spending. However, this transition will take time and requires changes to income distribution, social welfare, and affordable housing. Looking ahead to 2024, China's growth target may be around 4.5% as the government balances growth stability and financial system stability.
The Challenges of Restructuring China's Economy
China aims to restructure its economy to be more consumer-led, but faces challenges. The cyclical weakness in consumer spending is due to income loss during the pandemic years, resulting in lower consumption growth. The structural weakness is characterized by a low share of private consumption in GDP, low income share for workers, weak social welfare systems, and high housing prices. To address these issues, China needs to increase fiscal spending for social welfare programs and reform the Hukou system to provide better social benefits for migrant workers. Additionally, affordable housing initiatives can increase consumer spending by providing access to cheaper housing. However, these changes will take time, and China will need to manage both cyclical and structural weaknesses to become a consumer-led economy.
Limited Infrastructure Spending and Stabilizing Measures
China's stimulus measures have focused on stabilizing growth and offsetting declines in the housing market, rather than large-scale infrastructure spending. The government has invested in green energy transition projects and announced additional investments in resilience to nature catastrophes and affordable housing. However, the central bank is prioritizing stabilizing the financial system and controlling debt levels, making large-scale infrastructure spending less likely. China's local government debt has increased, making it difficult for them to invest. While stimulus measures can stabilize short-term growth, China needs to address the lack of economically meaningful projects and manage financial stability concerns. Limited infrastructure spending will be targeted and may continue to offset the decline in housing investment.
China's Economic Outlook for 2024
China's economic outlook for 2024 is challenging, with a potential growth target of around 4.5%. The current trend growth is lower, with weak industrial production, retail sales, and fixed investment. China's government aims for a reachable yet stable growth target that balances growth objectives and financial system stability. While there is uncertainty due to cyclical weakness in consumer spending and structural changes, such as the housing market correction and demographic shifts, China's focus remains on stabilizing the economy without overstimulating. Achieving a more consumer-led economy and addressing the challenges of income distribution, social welfare, and housing affordability will take time.
Liang is currently based in Shanghai and has close to twenty years of market experience as a currency strategist, China economist, portfolio manager, and quant analyst. He has worked for DWS, Sal Oppenheim, and Union Invest. This week's podcast covers: sentiment on the streets of Shanghai, how the China economy performed over 2023, more supply than demand, and much more.
