China’s Economic Resilience and Challenges

Analysts at Morgan Stanley report that China’s economy exhibits resilience, yet faces challenges due to limited policy support and external pressures.

While recent export and consumption data suggest optimism, there are concerns regarding fiscal and housing policy measures, leading to a more cautious outlook.

In their latest report, Morgan Stanley presents both “bull” and “bear” scenarios for China’s economy.

Positive Developments:
– Chinese export growth increased by 10% in Q4 2024, up from 5.4% in Q3 2024, fueled by front-loaded shipments to the U.S. ahead of potential tariff changes under the forthcoming Trump administration.
– Consumption saw significant momentum, with December sales in autos and home appliances benefiting from Beijing’s expanded consumer trade-in programs, potentially maintaining GDP growth at 5% on an annualized basis through Q1 2025.

Concerns and Challenges:
– However, these growth drivers may not sustain in the long term, as export front-loading and consumer spending driven by stimulus have decreased the urgency for broader policy easing from Beijing.
– The housing market shows signs of weakening, with diminishing prices and increasing discounts from sellers indicating low buyer demand.
– Progress in reducing housing inventories remains slow, with local government bond issuance vital for infrastructure spending continuing at a sluggish pace, despite efforts to streamline approvals.
– Monetary policy appears limited, with Beijing prioritizing yuan stability against the backdrop of global inflation risks.
– Potential future challenges include broader U.S. tariffs and changing domestic social dynamics, which could alter the outlook in subsequent quarters. Current conditions imply only moderate economic momentum.