The President Xi Jinping announced China’s Gross Domestic Product (GDP) will grow by approximately 5% in 2024. This means that China, the second largest economy on the planet, is well on its way to meeting its growth goal.
The disclosure marks the end of a turbulent year that was marked by uncertainty in economic conditions and signals an extension of support for policy into 2025.
Stability and Progress in the Year of 2013
Xi, in a speech released by the official Xinhua News Agency, said that China’s economy is “overall stable, progressing within stability.”
The President noted that the risks had been mitigated in certain sectors, and employment levels, as well as prices, were relatively stable, even though economic conditions have been unpredictable for a whole year.
Xi’s announcement confirms a significant year of progress after initial doubts about the 5% goal.
The growth has been boosted by the stimulus packages that policymakers have implemented since September. Economists are now predicting a 4,8% annual expansion.
Support for policy to continue through 2025
Xi’s remarks on New Year’s Eve to China’s highest political advisory group suggest that the support for the country’s economy will continue until 2025. He also reiterated calls for proactive macroeconomic policy.
China will likely set an annual growth goal for 2025 that is similar to what it was this year. This reflects the leaders’ desire to take more aggressive measures to offset potential effects of increased US tariffs once President-elect Donald Trump takes office in Washington next month.
Annual legislative sessions, however, will announce the official GDP target in March. A Reuters report also suggests a 5% target growth for next year.
Economic headwinds: How to navigate them
China’s economic growth is still being held back by a weakening domestic market and a bleak outlook for its exports.
The property market is still in a downturn and deflation will likely continue into the next year.
Beijing may not have taken the drastic action required to stop the price decline, but officials are willing to increase support in the event of a slowdown, as they did this year.
The monetary ease is on its way
The People’s Bank of China may be the next to ease up on China’s markets. They will reduce the Reserve Requirement Ratio (RRR), the amount of money banks are required to hold as reserves. This is a step they had previously indicated was possible.
Pan Gongsheng, the Governor of the PBOC in October, said that depending on the liquidity situation by year-end the central bank may lower the RRR from 25 to 50 basis point.
At a major economic summit in December, China’s leaders pledged to reduce the RRR “at an appropriate time”, without giving more details.
Balance between policy and stability
The PBOC decision to postpone the RRR reduction likely reflects concern about stabilizing yuan.
A RRR reduction could have a negative impact on the Yuan’s depreciation by creating an environment where yuan assets are less attractive than dollar assets. This would lead to fund withdrawals.
In December the yuan fell to its lowest level in a year, putting further pressure on PBOC.
Bruce Pang is a senior researcher at the National Institution for Finance and Development. He says that the PBOC has created policy room to deal with external uncertainty, particularly as it awaits the new US Presidency.
Expecting PBOC actions
Analysts, such as Liu Yu of Huaxi Securities predict that despite the liquidity on the market today, the PBOC will likely lower its RRR before Lunar New Year, which begins January 28.
The PBOC will provide longer-term liquidity over the coming year by reducing its RRR and purchasing more government bonds in order to stimulate the economy.
As updates emerge, this post Xi may modify the amount of stimulus to be provided in order to achieve 5% GDP growth by 2024.
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