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China’s consumption will drive growth in 2024: BNP Paribas

There is a silver lining to the country’s property market slump, says BNP Paribas's chief China economist Jacqueline Rong.
Crowds walk below neon signs on Nanjing Road. The street is the main shopping district of the city and one of the world's busiest shopping districts.

Private household consumption will be the main driver of Chinese economic growth in 2024, according to BNP Paribas’s chief China economist Jacqueline Rong.

Last year, investors widely anticipated China’s economic reopening as a catalyst for growth after consumers faced rolling-lockdowns during Covid-19.

But a weak labour market and lowered household income expectations coming out of lockdowns meant that the pandemic rebound in China failed to materialize as much as investors had hoped.

The drawn-out downturn in the country’s property market – which forms a high portion of household wealth – has also dampened consumer confidence in the country.

But there is a silver lining to the prolonged decline in the Chinese property market, according to BNP Paribas’s Rong (pictured).

“We think one of the drivers behind the high household saving rate was the fact that at least the before the property slump, China’s property prices were rising constantly,” she said at a recent media briefing in Hong Kong.

“So, for a lot of households, in order to be able to afford to buy a property they needed to save more to keep up with rising property prices.”

“However, that expectation about private property as a good investment vehicle has changed profoundly.”

She argued that since the property market slump, consumers won’t need to save as much money to offset against ever-increasing property prices – which will cause the currently high precautionary saving rate to drop.

This, combined with a steady improvement in the Chinese job market, should create room for faster consumption growth, according to the economist.

She said: “We think a major growth driver this year will be consumption, especially private consumption.”

China’s real GDP growth since 1980


However, it is important to consider that Chinese consumers have historically maintained a high savings rate due to various other factors, including cultural influences and a weaker social safety net.

Abbas Barkhordar, manager of the Schroders Asia Pacific fund said that unless there are some structural changes to its social security benefits, he doesn’t expect the savings rate to decline materially.

“Unless we see a big change in social safety nets and policy from the government, I wouldn’t expect saving rates to collapse down to more Western level,” he told FSA.

“When you look at where a lot of the disappointment in China has come from, it’s actually come from consumption.”

“We don’t expect there to be enormous jump in consumer confidence, although the savings rate has started to normalise and you’ve seen the impact of that in certain sectors.”

Sectors such as travel and hospitality did see a rebound after Covid restrictions were lifted in China, but Barkhordar flagged that this reversal might be just temporary and not necessarily an indication of sustainable growth going forward.

Another major obstacle for achieving China’s economic growth target in 2024 is its high unemployment rate, which erodes consumer confidence and income and has important repercussions on the overall economy.

China’s youth unemployment rate hit a record high of over 20% in June last year before the government stopped releasing the official figures in August.

But there are signs that the job market could be improving. China’s unemployment rate has fallen from 5.5% at the end of 2022 to 5% at the end of 2023, according to the latest government figures.

BNP Paribas’s Rong said: “We think that a steady improvement in the job market will eventually translate into better expectations for income this year.”

Part of the Mark Allen Group.