Policymakers set an economic growth target of 5% for 2024. Fiscal stimulus may fall short of the target, but proposed fiscal reforms could have a significant medium-term impact.
Measures to stimulate housing demand, broaden developers’ funding channels and transform the real estate sector in China will not easily improve homebuyer sentiment amid ongoing economic concerns.
While the government has provided some funding support with regards to onshore public bonds, there could be spillover risk from other forms of debt.
Cyclical and structural pressures will continue to weigh on China’s growth prospects despite stronger policy support for the economy over recent months.
Developers may be able to obtain the necessary funding to complete and deliver their qualified unfinished projects. But, a market recovery remains unlikely in the near term amid weak housing demand.
The court order reinforces our view that the Chinese government will choose to resolve property sector debt issues via commercial channels over corporate bailouts.
Cyclical disinflationary pressures will likely dissipate as energy and food prices steady. But, if unmanaged, structural economic issues could cause longer-term disinflation or deflation.
The economic slowdown and stressed property sector are putting pressure on budgets, while central government support is becoming more selective.
While the government has provided liquidity support for financially distressed regional and local governments and LGFVs to alleviate refinancing pressures, challenges for the sectors remain.
Weak sentiment will strain sectors already facing difficulty like property, causing spillover effects to other industries. Slower global growth and geopolitical tensions add to challenges.
Slower projected GDP growth, low interest rates and growing asset risks, particularly in the property sector and at local government financing vehicles, underpin our negative outlook for 2024.
Credit conditions for nonfinancial companies in China will worsen in 2024 as GDP growth softens and the prolonged property market downturn has adverse spillover effects on other sectors.
China faces a significant task of ensuring the stability of its financial system while discouraging expectations of implicit government support. Weaker growth is also reducing its fiscal capacity.