China traditionally summarizes the economic outcomes of the year and sets the course of economic development for the forthcoming year in December. The Central Economic Work Conference, which took place in Beijing from December 11 to 12, customarily hosts this event. The National People’s Congress (NPC) session in March finalizes the specific economic plans for the year.
Concurrently with this year’s assessment of China’s economic circumstances, the fifth national economic census revealed long-term economic trends that have prevailed since 2018. The economic census, a critical national study in China, offers a comprehensive analysis of the secondary and tertiary sectors of the economy, providing valuable insights into its social and economic development.
Significant growth continues in the service sector and manufacturing industries, as China’s economic structure continues to improve. More than 2% higher than in 2018, the added value of the manufacturing sector accounted for 56.3% of GDP in 2023. By the end of 2023, these two sectors employed over 428.98 million individuals, an increase of 11.9% from the end of 2018.
Two factors are responsible for the structural transformation of the Chinese economy: the rapid increase in the share of high-tech and new energy industries in GDP, which is associated with the “green” transformation of industry, and the decline in the share of the real estate and construction sectors. Additionally, there has been a rise in income from the domestic market and a decrease in export income.
In 2023, there was a 2% increase in the proportion of high-tech manufacturing enterprises within companies that exceeded the established size, with an annual turnover of at least 20 million yuan, compared to 2018. Furthermore, China’s R&D investments experienced substantial growth in 2023, increasing by 61.9% in comparison to 2018. China’s R&D investments are swiftly approaching the average level of the 38 developed OECD countries, according to certain estimates.
The production of solar panels and wind turbines has increased by 4.9 and 7.4 times, respectively, in comparison to 2018, and the production of new energy vehicles has been the world’s largest for nine consecutive years.
The fifth national economic census included the digital economy for the first time. At the conclusion of 2023, there were 2.92 million corporate enterprises in China that were involved in the primary sectors of the digital economy, and they employed 36.16 million individuals.
This context elucidates the strategic orientation of China’s economy over the past three years, as it used the expansion of high-tech manufacturing and exports to counteract the decline in construction (real estate and transportation infrastructure). Previously, these sectors had been the driving force behind economic expansion, accounting for a substantial portion of the nation’s GDP.
In general, the structural transformation of the economy is advancing successfully, despite the emergence of certain hazards. The initial risk is the overproduction of high-tech products from emerging industries, which has the potential to result in a decrease in production, as evidenced by the case of electric vehicles. Their production is surpassing the demand for the domestic market.
The second risk is that the protective measures put in place by Brussels this year could pose challenges for the export of these products to the EU and the US in 2025, given that these countries have already assimilated them. The expansion of China’s automotive (and other) exports to Russia partially alleviates this situation.
The economic results for 2024 are generally favorable for China and are consistent with these trends.
Despite the challenges faced by the real estate sector and consumer sentiment in the first three quarters of 2024, China’s economy experienced a 4.8% growth rate (preliminary data), which was significantly higher than the anticipated global average growth rate. The World Bank has revised its 2024 GDP growth forecast for China to 4.9%.
Han Wenxiu, Deputy Director of the CPC Central Committee’s Office for Financial and Economic Affairs, successfully achieved the projected GDP growth rate of 5% for this year. Han Wenxiu regarded this figure as a guideline rather than a fixed target for 2024.
Active macroeconomic support measures have contributed to a slight increase in domestic demand, as evidenced by recent data. A 150 billion yuan (approximately $20.6 billion) trade-in initiative for used products has contributed to a recovery in retail sales of household appliances, furniture, and cars, as reported by Chinese media since September.
The increase in the issuance of special-purpose bonds by local governments, which are guaranteed by the central government, was partially responsible for the 13% year-on-year growth in infrastructure investments from September to November. This mechanism has been employed by the central government to resolve the increasing debt of local governments and to provide support for infrastructure construction in provinces.
In November, the aggregate decline in industrial profits slowed, indicating that the trends of China’s economic recovery persisted. The National Bureau of Statistics of China released data on December 27 that indicated a 7.3% year-over-year decrease in the total profit of industrial enterprises in November, in contrast to a 10% decline in October.
The macroeconomic support for economic development has intensified since September, leading to a consistent increase in industrial production and a rise in corporate profits in November. Measures like stabilizing the domestic real estate market, increasing budget spending, and replacing and leasing large-scale equipment have stimulated domestic consumption and capital investment demand. Zhou Maohua, an analyst at China Everbright Bank, anticipates this will lead to a surge in corporate profits and a rise in prices.
China delineated its economic priorities for 2025 during the annual Central Economic Work Conference in Beijing in early December. The conference prioritized the preservation of sustainable economic development, the preservation of employment, the preservation of price stability, and the increase in the incomes of individuals in accordance with economic growth.
During the meeting, there were demands to enhance the coordination of fiscal, monetary, and employment policies, as well as policies related to industry, regional development, trade, environmental protection, and legal regulation.
Additionally, there were demands to continue the liberalization of China’s economy. In the face of tariffs and other protective measures from the EU and the US, which impede the flow of products in the global supply chain and, as a result, increase production costs, the removal of barriers for foreign companies will motivate Western companies to invest in China’s economy.
Wen Bing, the Chief Economist at China Minsheng Bank, anticipates that China’s GDP growth target in 2025 will remain at approximately 5%, as it did this year. The expert predicts that the ratio of China’s budget deficit to GDP will increase to 3.8% in 2025, which equates to an approximately 1 trillion yuan increase from 2024.
Consequently, government spending, which has demonstrated its efficacy in the aftermath of the 2008-2009 financial crisis, will not only continue to bolster China’s economic development through debt financing but also reinforce it.
It is important to emphasize that this mechanism does not generate economic crises and does not pose a threat to the economy. Consistent monitoring of even minor changes in the financial and economic situation, along with timely, sensible macroeconomic decisions, mitigates the long-term risks this mechanism may pose. In any case, economic circles in China anticipate that the absence of economic growth, in conjunction with the absence of government debt and budget deficit, would result in significantly more severe economic issues and risks.
Han Wenxiu predicts that China will transition to a moderately permissive monetary policy and implement a more active fiscal policy in the upcoming year, following 14 years of conservative policies. It is anticipated that the implementation of more stringent policies will result in an increase in household incomes and an expansion of effective domestic demand.
In general, the Central Economic Work Conference’s decisions are anticipated to guide China’s transition to a more proactive macroeconomic policy in 2025. This shift is anticipated to facilitate the execution of the 14th Five-Year Plan (2021-2025) and establish a strong foundation for the successful commencement of the 15th Five-Year Plan (2026-2030).