China Economic Update, December 2024

Industry Investment Rating - The report does not explicitly provide an investment rating for the industry, but it highlights the challenges and opportunities in China's economic landscape, particularly in the property sector and domestic demand [28][29][32] Core Views - China's GDP growth has moderated to 4.8% in the first three quarters of 2024, driven by subdued domestic demand and a significant drag from the property sector, which saw real estate investment contract by 11.5% y/y in July-November [28] - The government has implemented incremental policy stimulus, including monetary easing and fiscal measures, but the impact has been constrained by weak credit demand and persistent challenges in the property sector [29][32] - The report forecasts GDP growth of 4.9% in 2024 and 4.5% in 2025, with inflation expected to remain low at 0.4% in 2024 before rising to 1.1% in 2025 [30][32] Recent Economic Developments - Domestic demand has weakened, with retail sales growing at 2.8% y/y in July-November, about half of the 2019 growth rate, reflecting weak consumer confidence due to falling property prices and sluggish income growth [28][66] - Manufacturing and infrastructure investment have remained robust, growing by 9.6% and 11.4% y/y respectively in July-November, partially offsetting the contraction in real estate investment [28][66] - Carbon emissions declined by 0.7% y/y in the first three quarters of 2024, driven by reduced output in construction-related industries, despite a 6.6% y/y increase in electricity production [100][101] Outlook, Risks, and Policy Implications - The outlook for China's economy is subject to domestic and external risks, including a persistent downturn in the property sector, tighter local government financing, and global trade uncertainties [33][149] - Policy implications include the need for structural reforms to address vulnerabilities such as high property developer and local government debt, low consumption, and an aging population [34][152] - The report emphasizes the importance of fostering domestic demand, supporting a sustainable property sector recovery, and managing local government financial risks through fiscal reforms [34][157] Special Focus: Economic Mobility and China's Emerging Middle Class - China's secure middle class has expanded significantly, growing from 9.8% of the population in 2010 to 32.1% in 2021, with rural areas seeing a larger absolute reduction in low-income population compared to urban areas [37][165][177] - Education and wage-earning jobs are key pathways to upward mobility, with 62.6% of the secure middle class and 71.2% of the upper-income class belonging to the salaried or wage-earning group [183][184] - Future pathways to upward mobility will likely depend more on higher education, as the economy shifts towards high-value services and innovation-driven industries, with significant gaps in educational attainment between urban and rural areas [191][195]