As 2023 approaches its end, how to look ahead to the Chinese economy next year has become a recent market focus. At a recent media exchange meeting, Lu Ting, Chief Economist of Nomura China, believes that some of the current challenges will continue until 2024, but there is hope in the challenges. Next year may be a year when some industries, such as the real estate industry, have a real chance to clear their doors. Lu Ting suggests setting the target GDP growth rate for next year at around 4.5%.

Looking back at the Chinese economy in 2023, Lu Ting believes that the market had high expectations at the beginning of the year, but later on, some aspects met expectations, but did face many challenges, such as CPI, RMB exchange rate, market interest rates, stock market, etc. The underlying reasons include differences in global economic cycles, a high export base in China in the past few years, difficulties faced by the real estate industry, and geopolitical influences.

"Some of the current challenges will also continue into 2024." Lu Ting pointed out that the first challenge comes from the post pandemic consumption recovery, and related data may show a significant slowdown next year. The reasons behind this include: on the one hand, the impressive performance of 2023 consumption data will bring a high base effect to next year. At the same time, a part of the high growth in 2023 is due to the retaliatory consumption rebound, and these consumer demands will face some downward pressure next year; On the other hand, from the performance of housing prices and stock prices this year, the wealth effect of residents has declined. In addition, compared to the optimistic expectations in the early stages of the epidemic, the current adjustment of expectations will also have a certain impact on consumption in the next stage.

The second challenge is in the real estate industry. Lu Ting believes that there are signs of stabilization in the real estate industry at present, but it is not optimistic to believe that the real estate industry has bottomed out and rebounded. The reason for this is that the real estate industry still faces two negative cycles, namely the negative cycle between guaranteed delivery and purchase of houses, and the negative cycle between local government land sales and expenditures, "If developers cannot sell houses well, it will be difficult for them to have the money to build houses, and people will not be willing to buy properties in the future. If developers do not buy land, local government income will decrease and expenses will be reduced. This is a very important and perhaps the most important reason for the overall unsatisfactory economic situation in 2023."

Lu Ting emphasized that there has been some progress in the issue of guaranteed delivery of housing this year, but further efforts are needed. He said that when looking at the past few years in total, the proportion of delivered properties to sold properties is about 50%. "This is a relatively serious problem facing the entire real estate industry now and a major obstacle to industry recovery."

"If the real estate market in first and second tier cities stabilizes, then due to substitution effects, market demand in small and medium-sized cities may be affected," said Lu Ting with caution when it comes to the effects of loosening real estate policies in many regions this year.

"I think at least in the first half of next year, the real estate industry cannot be said to have bottomed out and rebounded," said Lu Ting.

The third challenge is in foreign trade, and the pressure is mainly related to the global economic situation. Lu Ting believes that 2024 will be a year of true global economic slowdown. Nomura predicts that the economic growth rate in the United States will slow down to about half of this year, around 1.3%, Japan will slow down from around 1.7% this year to around 0.6% next year, and Europe will experience negative growth. "The economic growth rate of these economies will either halve or shrink from growth to contraction, which will definitely put pressure on our exports. However, due to the contraction of export data this year due to last year's high base, next year's export data may be better than this year, but the global economic situation next year will definitely be worse than this year." Don't take this lightly. "

The fourth challenge lies in the "New Three Samples" (new energy vehicles, lithium batteries, and photovoltaic products). Lu Ting specifically mentioned that this year's "New Three Samples" have performed well in investment, production, and exports, "which is a very bright spot in the Chinese economy this year." However, the "New Three Samples" may face certain pressure next year. Firstly, this year's impressive results may bring a high base effect to next year. Secondly, The export sector will face increasing pressure from Europe, America, and other countries. Thirdly, some domestic investments will bring about overcapacity and face pressure from price drops, which will in turn reduce the investment intensity in the next stage.

Based on this, Lu Ting predicts a GDP growth rate of 4% next year, which is "relatively conservative, but I believe that a 4% growth rate is more realistic compared to the problems faced next year and the high base of this year." At the same time, he suggests setting the GDP target growth rate for next year at around 4.5%.

In addition to challenges, Lu Ting also talked about many hopes and expectations for the economy next year. "The hopeful side happens to be in the middle of the challenges." He believes that next year may be a year when some industries such as real estate have a real chance to clear up.

Lu Ting believes that the key to clearing out the real estate industry lies in the guaranteed delivery of housing. "China's real estate market is mainly the new housing market, and the new housing market is mainly the futures market. The key is that if the market cannot become a spot market, and if the futures system cannot be completely abolished, the discipline of the futures market must be implemented and delivery must be guaranteed." Lu Ting also pointed out that guaranteed delivery of housing cannot rely solely on commercial banks, local governments, and Developers need to rely on the central government.

In addition, Lu Ting stated that if the issue of guaranteed housing delivery is initially resolved and begins to stabilize next year, the relaxation of purchase restrictions, sales restrictions, and price restrictions policies introduced in many places this year will have better opportunities to play a role, and China's urbanization will face a new adjustment.

In the past few years, the focus of urbanization in China has actually shifted to many third tier cities, but in reality, it has brought various problems, including skyrocketing and falling housing prices in third tier cities, rapid increase in local government debt, and a decrease in the efficiency of many infrastructure construction projects. Because if the local economy and population cannot keep up with a large amount of infrastructure construction, it will eventually become inefficient infrastructure and a large amount of government debt problems, and the debt itself will not "It's a problem, it needs to correspond to very high-quality assets." Lu Ting said that according to the current loosening and direction of various policies, the subsequent process of real estate recovery will actually bring about the optimization of urbanization in China - the development of large cities and central cities, various resources including land resources, financial resources, credit resources, etc., will follow the population and industry to gather in some places, bringing about an increase in demand and efficiency in China as a whole.

(This article is from The Paper)