Five trends to watch in China in 2024

Decelerating growth is the new normal

In 2014, President Xi Jinping introduced the term “China’s new normal” to describe the country’s shift towards a slower rate of GDP growth and a maturing economy. This new normal is marked by four key characteristics: mid- to high-rate growth, an upgraded economic structure, a shift from a production investment-driven model to an innovation-driven one, and high risks. Despite challenges from excess supply and stagnant demand, a cautious recovery is expected by most observers, with the growth rate likely to stabilize at around 4%.

Selective foreign investment withdrawal continues, while others double down for innovation and growth

The retreat of foreign financial investment in China is notable. Many foreign enterprises are concerned about a deteriorating investment environment, especially with the US Federal Reserve interest rate outperforming returns in Chinese financial markets. This shift also represents a technical adjustment for higher returns rather than only an indication of poor economic performance in China. Take Bertelsmann Investments, one of Germany’s largest venture capital funds, which plans to inject $700m into Chinese startups.

But one cannot look at China as one single business market, nor generalize across industries. Several industries show high growth potential in China and are open to foreign investors, including aviation, healthcare, renewable energy, and high-end manufacturing. Companies like Airbus, Volkswagen, and FUCHS are committing innovation resources to China. AstraZeneca is increasing its investment in China by planning to spend approximately $450m on a factory for making inhalers to treat chronic obstructive pulmonary disease (COPD).

Real estate industry: Challenges and regulatory measures

The real estate industry, a vital part of China’s economy, is facing significant challenges. In the first half of the year, national real estate development investment decreased by 7.9% year-on-year to 5,855 billion yuan, with residential investment dropping by 7.3%. Contributing factors include a more conservative investment approach following inflation and economic downturn, along with the bad debt of real estate developers. For instance, companies like Evergrande, now bankrupt, faced a liquidity crisis due to their disproportionate debt compared to their revenue. The Chinese government’s implementation of the “Three Red Lines” policy, a series of financial regulatory guidelines on real estate, has been a response to these challenges. However, the government is cautious about allowing significant real estate price drops to avoid large-scale asset impairments on bank balance sheets.

All eyes on the 2024 ‘two sessions’

The Central Economic Work Conference 2024, a pivotal annual meeting in China, has placed a strong emphasis on reform. This year’s conference was pivotal in setting the national economic agenda, focusing on enhancing high-quality development, increasing domestic demand, accelerating opening, and deepening supply-side structural reforms.