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(Yicai Global) July 17 -- China's economic growth momentum will likely have a moderate uptick this year, following a challenging recovery last year, according to the ASEAN-Plus Three Regional Economic Outlook report.
"China's macro fundamentals remain sound, paving the way for a more stable economic recovery in 2024 following the challenges of 2023," the report showed yesterday. Consumption is expected to remain the primary driver of growth, supported by further improvements in labor market conditions.
The ASEAN+Three consists of the 10 Association of Southeast Asian Nations members - Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, Vietnam -- and China, Japan, and the Republic of Korea.
Investment will likely gain more traction later this year, driven by the expansion of traditional infrastructure, modern and advanced infrastructure construction, and substantial investments in high-tech manufacturing and services. Real estate investments will gradually recover as overall conditions in the market improve and confidence returns.
"China has ample policy space and capacity to navigate through these challenges," the report said. "Fiscal soundness remains intact amid continued efforts at fiscal consolidation."
China's external position remains robust, characterized by a healthy account surplus and substantial foreign currency reserves. Domestically, the country hosts well-organized and efficient production networks and supply chains, enabling it to mitigate the effects of intermittent global supply chain disruptions and continue supporting regional production and trade.
"On the financial front, the banking system continues to be well-capitalized," providing moderate room to ease monetary and credit policies further, according to the report.
In addition to the recent approach of measuredly reducing the reserve ratio requirements and loan prime rates for banks, the authorities continue to have many macroprudential levers at their disposal to support the domestic economy, particularly the real estate sector's recovery.
"Robust economic growth in China is also expected to generate positive spillovers for the region," the report added. The region's growth momentum will likely remain favorable, supported by resilient domestic demand, strong exports, and recovering tourism.
Trade Configuration
"China has managed to maintain its position as a global trade hub despite its trade conflict with the United States," the report noted. While some sectors have seen a decline in export shares, particularly labor-intensive ones, China continues to gain an advantage in many industries, especially those that are medium- or high-skill and technology-intensive.
Although trade between the US and China has slowed as expected, several economies gaining China's "lost" export share are also importing more from it. Countries, including Vietnam, Canada, Mexico, India, and South Korea, have seen their US export shares jump over the past five years, filling China's previous role. The global value chain has been lengthening with spillover effects of Sino-US trade frictions, but US dependence on China has not unwound.
"Value-added originating from China that is absorbed by US final
demand has not fallen substantially over the years, despite
calls of decoupling," according to the report. "This is also true for the US value-added imports of manufacturing goods, about a fifth of which continues to be derived from China, based on the latest available data.
"The rise of "additional links" also mean that US trade exposure to supply chains involving China remains higher than what headline trade figures suggest," it added.
Aging Population Problem
The report also highlighted the aging population as one of the key challenges increasingly besetting the ASEAN+Three region.
China's proportion of people aged 65 and above rose from 8.9 percent in 2010 to 14.9 percent in 2022, and the figure is expected to double to 30.1 percent by 2050, with sustained decreases in mortality and fertility rates. This will make the country one of the most aged economies in the world by the middle of this century.
"China is undergoing a significant demographic transformation. Beyond the decline in total population, the age structure of its people has shifted rapidly," the report said.
"Demographic transition is estimated as reducing China's long-term economic growth," it added. "Simulation results indicate that the annual GDP growth rate over 2020–2050 would be trimmed by 0.79 percentage points as the population continues to age. In 2050, demographic changes could lower China's growth rate by as much as 1.63 percentage points.
"However, tech-enabled advances in medicine, automation, and work and learning platforms are crucial for productive aging," according to the report. "Advanced production technologies and smart logistics will be instrumental in making regional supply chains highly agile against sudden shocks."
Editor: Marin Kadiev