Economic Overview of China in 2024

BEIJING (Reuters) – China’s consumer prices barely rose in 2024, while factory-gate prices extended into a second straight year of declines, according to official data released on Thursday. This trend is largely attributed to persistently weak domestic demand.

A combination of job insecurity, a prolonged housing downturn, debt, and tariff threats from the incoming U.S. administration under President-elect Donald Trump has negatively impacted demand, despite Beijing’s efforts to ramp up stimulus.

The full-year consumer price index (CPI) rose by 0.2%, as reported by the National Bureau of Statistics, matching the previous year’s pace and falling well below the official target of around 3%. This suggests that inflation has missed annual targets for the 13th consecutive year.

In December, the CPI experienced a slight increase of 0.1% year-on-year, down from November’s 0.2% increase and marking the slowest pace since April—consistent with forecasts from a Reuters poll of economists.

Core inflation, which excludes volatile food and fuel prices, slightly rose to 0.4% last month from 0.3% in November, marking the highest level in five months.

Additionally, the producer price index (PPI) fell by 2.3% year-on-year in December, a slower decline compared to the 2.5% drop in November and an expected 2.4% decline. Factory-gate prices have remained deflationary for 27 consecutive months.

Julian Evans-Pritchard, Head of China Economics, noted that the increase in core consumer prices and the slower pace of factory deflation indicates that “policy stimulus is providing some support to demand and prices.” However, he cautioned that the effect of the stimulus is likely to be short-lived, predicting that underlying inflation will decrease again later this year.

The electric vehicle price war has now entered its third year, leading to broader discounting across the retail sector, affecting items such as bubble tea and other discretionary products. Cautious consumers are increasingly choosing to rent items, such as cameras and handbags, rather than purchasing them.

Zhang Zhiwei, president and chief economist at Pinpoint Asset Management, remarked that “the deflationary pressure is persistent,” citing that the property sector downturn continues to weigh on consumer sentiment. He also indicated that inflation outlook significantly depends on the effectiveness of fiscal policy.

In late December, the World Bank upgraded its forecast for China’s economic growth in 2024 and 2025, but warned that subdued household and business confidence, along with challenges in the property sector, would continue to hinder progress.

China has agreed on a record $411 billion worth of special treasury bond insurance, aiming to boost fiscal stimulus to revive its faltering economy. The government plans to significantly increase funding through ultra-long treasury bonds in 2025 to spur business investment and consumption initiatives, as stated by the state planner last week.

Additionally, authorities have earmarked $41 billion in funds from government bonds in July to finance upgrades in equipment and trade-ins for consumer goods, including automobiles.

($1 = 7.3249 Chinese yuan)