The above February 2024 report by Allianz Research, part of the global Allianz Group hearquartered in Germany, confirms China's resilient yet slowing economy in search of new drivers for long-term growth. Download 2024-02-07-China - Allianz
In particular,
(a) China is heading towards lower trend growth. China's US$17.52 economy (2023), the world's second largest, cannot be expected to continue past high-digit growth indefinitely. Just look at America's trend growth rates in recent decades.
(b) In 2023, residential completions came in at 724mn square meters (+16% y/y), outpacing for the first time the volume of housing starts (693mn square meters, -21% y/y). This has helped reduce inventories and stabilize prices at the national level. The ongoing crisis may be a necessary adjustment towards a low-growth but more sustainable property market. Beyond the ongoing crisis, the rapidly aging and shrinking population, coupled with slowing urbanization, puts a brake on the long-term growth of the real estate sector.
(c) With its real estate and foreign investment engines sputtering, China desperately needs new drivers of growth. The target is for higher value-added manufacturing such as the ‘New Three’ industries of electric vehicles, batteries and solar energy products. .
(d) Exports are still going strong. Supporting the nation's growth, China's centrality in the global supply and value chain remains robust, de-coupling or de-risking regardless. The intensity of critical dependencies on China varies across importers, with the US being the most exposed: nearly 50% of its imports from China are critical dependencies. A shift in concentration of critical dependencies towards higher value-added sectors is clearly visible, especially when it comes to EU imports from China.
(e) According to ASPI's March 2023 Critical Technology Tracker, China is leading by far in research breakthroughs related to critical technologies, but the translation into manufacturing is not yet clear in all cases.
(f) Chinese competitive electric vehicles (EVs) have taken the world by storm in just a few years. China is becoming the "New Detroit" for EVs globally.
(g) China accounts for more than 80% of the global solar module manufacturing capacity and more than 80% of solar cell exports. It has the largest installed renewable capacity, exceeding 228 gigawatts (GW), more than the rest of the world combined, well ahead of the nation's original 2030 target. This trajectory reflects a broader strategic shift towards securing a dominant position in the global energy transition and making clean technology a cornerstone of national industrial policy.
(h) The comparison with Japan's "Lost Decade" is overhyped. China’s GDP per capita is roughly 40% of that of Japan in 1991, suggesting significant further room for growth. China’s urbanization rate currently stands at 66%, still a long way from the 78% observed in 1991 Japan. The Chinese economy can still rely to some extent on exports. Unlike 1991 Japan, China does not have an equity market bubble and its capital account is not fully liberlaized.
(i) Further pockets of growth could be found on the consumer side. Policies to strengthen the social safety net and increased public spending in healthcare and pension-related services would most likely allow Chinese households to save less and consume more. However, comprensive policy support seems to be lacking for now.
(j) Watch out for intensified headwinds such as chips war, protectionism, geopolitical tensions and the risk of creating other situations of excess capacities, inventories and leverage.
