China to steer a steady economy amid structural and geopolitical challenges

Its 2024 economic strategy blends ambition and caution, aiming for growth and stability amid uncertainty. The effectiveness of its policies and global dynamics will be critical

Yuhan Zhang

Published: 4:30pm, 1 Jan 2024

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China’s strategic positioning for 2024 reveals a multifaceted approach aimed at stabilising and enhancing its economic structure. Its economic blueprint is heavily predicated on the implementation of proactive fiscal policies designed to catalyse the growth of strategic hi-tech sectors.

This is not merely a financial manoeuvre but a deliberate stratagem to pivot towards high-quality development and a uniquely Chinese modernisation in the context of great power competition. The state’s intervention in funding strategic national hi-tech initiatives is a testament to its commitment to technological self-reliance.

Efforts in clean energy and low-carbon development will include environmental taxation policies and green government procurement to meet 2030 and 2060 carbon goals.

Fiscal policies will support innovation in particular, with incentives like additional deductions for research and development, tax reductions for key industries, and personal tax benefits for the conversion of scientific and technological achievements. Advanced manufacturing will benefit from investment-linked tax incentives, which include value-added tax credit refunds and the accelerated depreciation of fixed assets.

China’s monetary policy for 2024 is set to leverage structural monetary tools to bolster the digital economy, which represents a substantial portion of the economy. The People’s Bank of China (PBOC) is poised to guide financial institutions in directing credit towards specific industries, thereby reducing financing costs and stimulating growth in pivotal sectors such as tech innovation, advanced manufacturing and green development.

However, the success of these policies is contingent upon many variables that extend beyond the immediacy of policy implementation. For example, even if all the policies are fully implemented, technological breakthroughs generally require a lengthy incubation process and cannot be easily achieved in the short term. From the perspective of international competition, some industries in China will continue to be “choked” by foreign countries.

In 2024, the stock market is expected to continue to face liquidity challenges. Some portfolio managers anticipate a moderate uptick after four years of recovery efforts. However, until the liquidity issue is fundamentally resolved, the stock market will continue to struggle, with at best small rebounds brought about by government stabilisation efforts.

The Shanghai Stock Exchange’s Star Market offers investment opportunities focusing on hard technology and leveraging the dual circulation strategy to attract global investors. With policymakers continuing to seek new growth drivers in areas like semiconductors, pharmaceuticals, environmental, social and corporate governance (ESG), new energy and high-end manufacturing, substantial investments are expected. This is especially as the Star Market’s valuation is at a historical low, suggesting it could lead a market rebound.

Yet, external factors such as great power rivalry, the US election and US monetary policies (i.e., Federal Reserve rates could stay higher and for longer than many expected) are likely to cause significant market fluctuations, affecting the overall performance.

Meanwhile, China’s real estate sector, crucial to the economy, is undergoing a cautious recalibration. Balancing economic stability, employment preservation and the prevention of speculative bubbles will continue to be a policy priority.

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In 2024, China will continue to implement city-specific policies, enhance the people-oriented nature of real estate, and increase financial support for the construction of affordable housing. Notably, a December 27 PBOC policy conference talked about “equally satisfying the reasonable financial needs of different property developers”.

This statement is crucial. It emphasises the impartial treatment of state-owned and private enterprises. Theoretically, this is a very positive signal for private firms with financing needs.

The term “reasonable” has two main implications. One is continued support for the financing needs of real estate companies, which hope to see some relief next year. The other is that policymakers aim to prevent too much financial flow into the industry, reflecting the government’s strategy of supporting without over-promoting.

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First-tier cities, except Guangzhou, which has seen some of the biggest housing price plunges, have maintained purchase restrictions. We may see more curbs relaxed should market conditions deteriorate further in the first quarter of 2024.

However, relaxation of purchase restrictions is one of the most impactful policy measures for first-tier cities. Thus, any relaxation is expected to be cautious and likely to start in peripheral areas instead.

Land and housing prices are expected to rebound in some core urban areas of first-tier and second-tier cities, but the increase will be modest, and significant fluctuations are unlikely for the year.

China’s 2024 economy is navigating structural changes, investor and consumer confidence issues, and international tensions including the US-China trade war. The government’s plans to foster a unified market, bolster domestic demand and promote investment and foreign trade is a clear indicator of its strategic foresight.

A systemic collapse is extremely unlikely for now, but the journey is fraught with challenges, and achieving an economic growth of 4.6 per cent next year will be a considerable accomplishment for China.

In summary, China’s 2024 economic strategy is a blend of ambition and caution, aimed at stability and growth amid uncertainties. The effectiveness of its policies and global dynamics will be critical. Policymakers, investors and observers must grasp these nuances as China’s decisions affect the global economy.

As China charts its course, the global community watches with bated breath, anticipating the reverberations of its economic decisions on the international stage.

Yuhan Zhang is a scholar based at UC Berkeley specialising in China’s political economy. He is also an adjunct assistant professor at the G20 Center of Beijing Foreign Studies University’s International Business School

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