China investors will be asking these 3 questions in 2024

BEIJING
—
Despite
pockets
of
strong
growth,
China’s
investment
story
has
been
overshadowed
in
the
last
year
by
longer-term
problems
and
tensions
with
the
U.S.

Those
uncertainties
remain
as
2024
kicks
off.
The
country
is
also
navigating
new
territory
as
it
starts
to
settle
into
a
lower
growth
range
following
the
double-digit
pace
of
past
decades.

Here’s
what
investors
are
looking
at
for
the
year
ahead:

For
all
the
geopolitical
risks,
the
attraction
of
China
as
a
fast-growing
market
has
waned
as
the
economy
matures.

Many
were
disappointed
when
China’s
economy
did
not
rebound
as
quickly
as
expected
after
the
end
of
Covid-19
controls
in
December
2022.
Other
than
in
tourism
and
certain
sectors
such
as
electric
cars, sluggish
growth
was
the
story
for
much
of
2023,
dragged
down
by
real
estate
troubles
and
a
slump
in
exports.

Several
international
investment
banks

changed
their
growth
forecasts
for
China
multiple
times
last
year.
After
all
the
back
and
forth,
the
economy
is
widely
expected
to
have
grown
by
around
5%.

“Policy
response
is
essential
to
solidify
the
recovery
momentum,”
Citi
analysts
said
in
a
Jan.
3
report.

They
expect
that
as
early
as
January,
the
People’s
Bank
of
China
could
reduce
rates,
such
as
the
reserve
requirement
ratio
—
the
amount
of
funds
lenders
need
to
hold
as
reserves.
They
also
project
that
overall
GDP
could
grow
4.6%
this
year.

Beijing
has
announced
a
slew
of
incrementally
supportive
policies.
But
it’s
taken
time
to
see
a
clear
impact.

“We
believe
property
stabilization,
a
clear
exit
from
deflation,
better
policy
execution
and
communication
would
all
be
necessary
for
confidence
recovery,
with
stimulus
indispensable
and
good
reforms
welcome,”
the
Citi
analysts
said.
“The
risk
is
that
markets
may
not
be
patient
enough
with
reforms.”

In
mid-December,
top
Chinese
authorities
held
an
annual
meeting
for
discussing
economic
policy
for
the
year
ahead.
An
official
readout
did
not
indicate
significant
stimulus
plans,
but

listed
technological
innovation
as
the
first
area
of
work.

Among
major
upcoming
government
meetings,
Beijing
is
set
to
release
detailed
economic
targets
during
a
parliamentary
gathering
in
early
March.

“For
the
people
who
are
already
[invested]
in
China,
and
they
kind
of
stuck
with
it
for
2023,
it’s
this
belief
that
the
catalyst
is
coming,”
Jason
Hsu,
chairman
and
chief
investment
officer
of
Rayliant
Global
Advisors,
said
in
late
November.

“They’re
not
really
focused
on
the
fundamentals
of
companies
of
the
markets,”
he
said.
“They’re
just
betting
on
purely
monetary
and
fiscal
policy
to
buoy
up
the
economy
and
the
stock
market.”

However,
it
remains
to
be
seen
whether
China
will
boost
growth
in
the
same
way
it
did
previously.

“My
framework
is
China
is
not
going
to
put
up
significant
stimulus,”
Liqian
Ren,
leader
of
quantitative
investment
at
WisdomTree,
said
in
late
November.

“Even
if
China
has
a
meeting,
even
if
they
come
up
with
a
good
package,
I
think
a
lot
of
these
stimulus
are
constrained
by
this
framework
of
trying
to
upgrade
China’s
growth,”
she
said,
referring
to
Beijing’s
efforts
to
promote
“high-quality,”
rather
than
debt-driven,
growth.

Real
estate
is
a
clear
example
of
a
debt-fueled
sector,
one
that
has
accounted
for
about
a
quarter
of
China’s
economy.

The
property
market
slumped
after
Beijing
cracked
down
on
developers’
high
reliance
on
debt
for
growth
in
2020.
The
industry’s
close
ties
to
local
government
finances,
the
construction
supply
chain
and
household
mortgages
have
raised
concerns
about
spillover
to
the
broader
economy.

“China’s
property
downturn
has
been
the
biggest
drag
on
its
economy
since
the
exit
from
zero-Covid
restrictions
in
late
2022,”
Goldman
Sachs
analysts
said
in
a
Jan.
2
report.
“Property
sales
and
construction
starts
plunged
in
2021-22
and
continued
to
decline
on
net
in
2023.”

“However,
the
pace
of
decline
in
demand
has
slowed
and
we
expect
to
see
somewhat
more
stability
in
2024,”
the
analysts
said.

Commercial
housing
sales
for
2023
as
of
November
fell
by
5.2%
from
a
year
ago,
according
to
National
Bureau
of
Statistics
data
accessed
via
Wind
Information.
That’s
after
those
sales
plunged
by
26.7%
in
2022.

Although
the
real
estate
situation
is
“gradually
stabilizing,
it’s
hard
to
see
a
turning
point,”
said
Ding
Wenjie,
investment
strategist
for
global
capital
investment
at
China
Asset
Management
Co.,
according
to
a
CNBC
translation
of
her
Mandarin
language
remarks.

She
expects
policy
support
will
increase
in
2024,
because
authorities
have
shifted
from
focusing
on
preventing
risks
to
pursuing
progress,
while
maintaining
stability.
Ding
was
referring
to
new
official
language
that
appeared
in
the
readout
of
December’s
high-level
government
meeting.

While
it’s
clear
Beijing
would
like
to
reduce
the
property
sector’s
contribution
to
China’s
GDP,
it’s
less
certain
whether
new
growth
drivers
can
fill
the
void.

Machinery,
electronics,
transport
equipment
and
batteries
combined
contributed
to
17.2%
of
China’s
economy
in
2020,
Citi
analysts
said.

That
means
such
areas
of
manufacturing
could
offset
the
drag
from
real
estate,
the
analysts
said.
But
they
pointed
out
the
economic
transition
can’t
happen
overnight
since
it
requires
addressing
a
mismatch
in
labor
market
skills
and
adjusting
a
supply
chain
that’s
been
built
to
support
property
development.

“Were
tech
sanctions
to
become
a
binding
constraint
for
the
new
drivers,
their
potential
to
make
up
for
the
shortfall
from
property
would
not
materialize,”
the
report
said.

Despite
the
macro
challenges,
Beijing
has
signaled
it
wants
to
bolster
domestic
tech
and
advanced
manufacturing.

Ding
from
China
AMC
said
sub-sectors
of
high-end
manufacturing
could
benefit
this
year
due
to
an
upturn
in
the
global
tech
cycle.
Examples
include
those
related
to
consumer
electronics
and
computers.

She
also
expects
producer
prices
to
return
to
growth
at
the
end
of
the
second
quarter,
boosting
corporate
earnings
per
share
by
about
8%
to
10%
in
China.
Another
area
her
team
is
looking
at
is
Chinese
companies
that
are
growing
their
global
revenue.