Spurring consumption is now China's "no.1 economic mission"
Ren Zeping says China will struggle to hit 5% GDP target in 2024 without greater support for private sector
Our briefing on critical economic and financial developments in China as of Friday, 6 September, 2024:
Domestic economists expect China to focus on driving consumption growth in the second half, in order to compensate for lacklustre investment and risk-fraught dependence on exports.
The Communist Party expects the market for androids and humanoid robots to rapidly hit trillions of yuan, as China increasingly dominates investment in industrial robotics.
Leading Chinese economist Ren Zeping says China will struggle to hit its 2024 GDP growth target of 5% without greater support for private enterprise.
Spurring consumption growth is China's "number one mission" in 2H24
The Chinese central government recently unveiled a raft of new policies to expedite domestic consumption, amidst efforts to wean the economy off excess export dependence.
These policies include:
"The Several Measures on Expanding Support for Large-scale Equipment Upgrades and Old-for-New Consumer Goods Exchanges" (关于加力支持大规模设备更新和消费品以旧换新的若干措施), and the
"The Opinions on Expediting the High-quality Development of Services Consumption" (关于促进服务消费高质量发展的意见).
The "Several Measures" outline the use of 150 billion yuan in funds raised via ultra-long-term Chinese treasuries to strengthen support for China's old-for-new consumption campaign.
The "Opinions" call for "coordinated expansion of domestic demand...optimisation and expansion of services supply, stimulating the endogenous driver of services consumption and cultivating new growth points for services consumption."
Prominent Chinese economist Lian Ping (连平) writes that "uncovering potential consumption growth and driving growth in consumption" will remain China's "number one mission" in the second half.
"The central government's policies to encourage and drive consumption are considerable, and the timing of their issuance is quite apt.
"There could be an acceleration in consumption growth in the second half, and consumption's contribution to GDP growth could increase."
The GDP growth contribution rate of final consumption in the Chinese economy was 60.5% for the first half.
This rate showed a sharp decline over the period, however, coming in at 73.7% for the first quarter, before plunging to 46.5% in the second quarter.
Services retail sales rose 7.5% year-on-year in the first half, with food and beverage revenues posting growth of 7.9%.
Communist Party hails emergence of multi-trillion yuan market for android robots
The flagship newspaper of China's Communist Party has highlighted the immense economic potential of humanoid robots.
An opinion piece published by The People's Daily forecasts that the "accelerated evolution of humanoid robots is expected to create a multi-trillion yuan market."
According to the opinion piece, China is poised to play a leading role in the sector, given its widespread adoption of robotics for industrial purposes.
Figures from the Ministry for Industry and Information Technology (MIIT) indicate that China accounted for over half of the world's new industrial robot installations over the past three years.
MIIT data further indicates that China's manufacturing sector has seen a near 19-fold increase in the ratio of robots to workers over the past decade, to hit 470 units per 10,000 employees.
"We must further drive the in-depth integration of innovations in robotics with industrial innovations, and vigorously expand fundamental robotics research and breakthroughs in core technologies," said Xin Guobin (辛国斌), MIIT deputy-minister.
"We must actively improve the 'Robots+' Innovation System,' and drive the high-quality development of China's robotics industry."
China will struggle to hit 5% GDP target without boosting private sector: Ren Zeping
Leading Chinese economist Ren Zeping (任泽平) says China will find it a challenge to hit its 2024 GDP growth target of 5% without greater efforts to boost the private economy.
"Looking at the most recent round of data from June to August, the economy is once again easing, and pressure to reach the 5% growth target is large," Ren wrote in an online piece on China's economic outlook for 2H24.
"Greater exertion is needed."
Weak consumption and investment makes China susceptible to export shocks
According to Ren, the chief problems of China's economy at present are insufficient domestic demand and lacklustre confidence.
"Production is stronger than consumption, domestic demand is inadequate, prices are ailing, and nominal GDP growth is weaker than real [growth]."
Given concurrent weakness in both consumption and investment, Ren frets over China's increased economic dependence on exports, particularly given acrimonious relations with the US-led West.
"Consumption has been impacted by employment and income expectations, plus balance sheet contractions, and is comparatively weak.
"Infrastructure investment is on the slide, and real estate investment is still posting major negative growth, hampered respectively by slow progress on fiscal expenditures and weak rescue measures for the property market.
"Exports and manufacturing investment have become supports for the market at present, but could in future be impacted by the slowing US economy, trade frictions and worsening geopolitical tensions."
Chinese households and local government revenues under stress
Ren points to the economic and living stresses of Chinese households as a key cause of weak demand.
According to Ren, working hours in China have hit new highs, while savings and household deleveraging have also tapped unprecedented levels. At the same time, household income growth has slowed.
Enterprises in the manufacturing sector have seen a strong performance, but the supply-demand balance is out of whack, capacity usage is low, prices are faltering, and profits remain lacklustre.
Local government finances - long viewed as an acute source of risk - have also come under further pressure, due to faltering revenues from land sales in the wake of the property market slump.
China's new economic missions
In order to address these challenges, Ren says China's three most important economic missions are:
Developing "new quality productive forces" - a reference to innovation growth and improvements to total factor productivity.
Achieving a soft landing for the property market.
Invigourating the confidence of private enterprise.
In Ren's view, the most important of these when it comes to priming China’s economic growth this year will be boosting the confidence of private enterprise.
"The private economy is the wellspring of social vitality, and invigorating the confidence of the private economy is of the utmost importance."