Become a Creator today!Start creating today - Share your story with the world!
Start for free
00:00:00
00:00:01
Under the Banyan Tree - Can China achieve 'around 5%' growth?
22 Plays1 year ago
Chief China Economist, Jing Liu, joins Herald van der Linde to discuss China's 2024 growth target and break down the jargon around it. Disclaimer: https://www.research.hsbc.com/R/61/bMqqk2X Stay connected and access free to view reports and videos from HSBC Global Research follow us on LinkedIn https://www.linkedin.com/feed/hashtag/hsbcresearch/ or click here: https://www.gbm.hsbc.com/insights/global-research.
Hosted on Acast. See acast.com/privacy for more information.
Recommended
Transcript
Introduction to HSBC Global Viewpoint Podcast
00:00:02
Speaker
Welcome to HSBC Global Viewpoint, the podcast series that brings together business leaders and industry experts to explore the latest global insights, trends, and opportunities.
00:00:13
Speaker
Make sure you're subscribed to stay up to date with new episodes.
00:00:16
Speaker
Thanks for listening.
00:00:17
Speaker
And now onto today's show.
00:00:24
Speaker
This is a podcast from HSBC Global Research, available on Apple Podcasts and Spotify.
00:00:30
Speaker
However you're listening, analyst notifications, disclosures and disclaimers must be viewed on the link attached to your media player.
Focus on Asian Markets with Jing Liu
00:00:46
Speaker
Hello and welcome to Under the Banyan Tree, where we put Asian markets and economics in context.
00:00:51
Speaker
I'm Harold van Linde, HSBC's Asian Equity Strategist.
00:00:55
Speaker
China's most important policy meeting of the year, the National People's Congress, is underway and the economic target for this year has been set.
00:01:03
Speaker
What does this tell us about the outlook for the world's second largest economy?
00:01:07
Speaker
And what does some of the jargon really mean?
00:01:10
Speaker
That's what we're going to discuss with Jing Liu, our Chief China Economist.
00:01:14
Speaker
From HSBC Global Research, you're listening to Under the Banyan Tree.
China's Economic Targets for 2024
00:01:29
Speaker
So here are the headline numbers.
00:01:31
Speaker
China set an economic growth target of around 5% for 2024, very much in line with expectations.
00:01:38
Speaker
The fiscal deficit, we're going to talk a bit about that more later, that's been set at 3%.
00:01:43
Speaker
And there's a lot of bonds that are being issued, a trillion RMB for the central government and nearly 4 trillion for local governments.
00:01:49
Speaker
We'll talk about this in a second as well.
00:01:52
Speaker
But the one who's going to enlighten on all of this is Jing Liu, our chief China economist.
00:01:58
Speaker
Jing, thanks for joining us.
00:01:59
Speaker
This must be a very busy time for you.
00:02:01
Speaker
Indeed.
00:02:01
Speaker
Thank you, Harold, for having me here.
00:02:04
Speaker
So growth, economic growth, they said it's going to be around 5%.
00:02:09
Speaker
That doesn't seem like a huge surprise.
00:02:11
Speaker
China's been hovering around this number actually for quite some time.
00:02:14
Speaker
Is this a bit of a damn squid or is there more to it?
00:02:18
Speaker
Well, on the surface, the around 5% growth target is exactly the same as last year.
00:02:23
Speaker
But you got to remember there's something called basic fact in a sense that last year, China grew by 5.2%.
00:02:30
Speaker
And in year of 2022,
00:02:34
Speaker
it grew by 3%.
00:02:36
Speaker
So in that sense, growing another about 5% in addition to last year's 5.2% would be a lot harder than last year to deliver 5%.
00:02:46
Speaker
That's the base effect, right?
00:02:48
Speaker
You grow 5% and then on top of it, you grow 5%.
00:02:50
Speaker
On that again, it's a bigger number by then.
00:02:54
Speaker
So let's take a step back.
00:02:56
Speaker
And can you remind me what sort of state the Chinese economy is in?
Challenges Facing China's Economy
00:03:00
Speaker
Well, China is still in the stage of normalizing from the pandemic scar in the sense that we see, for example, the Chinese New Year spending, the total spending has surpassed the 2019 level.
00:03:14
Speaker
However, per capita spending is still 10%, you know, less than the 2019 level.
00:03:21
Speaker
On top of that, export probably...
00:03:24
Speaker
We don't expect a very exciting number, mostly influenced by the global trade.
00:03:30
Speaker
And, you know, above all, the most headwinds come from the housing market correction.
00:03:35
Speaker
Yeah.
00:03:36
Speaker
So clearly there's quite a few challenges out there.
00:03:38
Speaker
Housing market, exports, demand is recovering, but slowly so.
00:03:43
Speaker
Does this put pressure on the leaders, the policymakers to unleash some more stimulus?
00:03:48
Speaker
Indeed, we actually have seen the policymakers becoming more proactive this year.
00:03:53
Speaker
For example, in the first two months, we already see the central bank surprise the market twice by delivering the monetary easing.
00:04:03
Speaker
So the first one was to lower the requirement for reserve by 50 basis points.
00:04:10
Speaker
So the banks have to keep money reserves at the central bank.
00:04:15
Speaker
They said, well, you can keep a little bit less and therefore that money becomes available for lending, right?
00:04:20
Speaker
Exactly.
00:04:21
Speaker
More liquidity injection.
00:04:22
Speaker
Actually, one trillion RMB liquidity will be released.
00:04:26
Speaker
And other than that, we also see the reduction of the so-called low prime rate on the five-year end.
00:04:33
Speaker
That is the benchmark rate for lending, for example, for mortgage and also corporate loans.
00:04:39
Speaker
So when you lower that, that can also stimulate the demand.
00:04:42
Speaker
Yeah, because it's cheaper to borrow money and purchase a house or build a factory and these sort of things.
00:04:47
Speaker
Good.
00:04:47
Speaker
So that's going on at the moment,
China's Shift to High-Quality Growth
00:04:49
Speaker
right?
00:04:49
Speaker
But there's been talk about this transformation of the growth model.
00:04:52
Speaker
And China had this first 10 years in this millennium of export growth and then that investment growth.
00:04:58
Speaker
What is that new growth model?
00:05:00
Speaker
So the new growth model is called high quality, which by itself sounds very vague.
00:05:06
Speaker
What it means is it's not a pure pursuit of a high speed growth.
00:05:10
Speaker
You remember China used to grow by double digit number and then 8%, etc.
00:05:16
Speaker
So now they emphasize on the growth should be driven by things such as manufacturing, modernization, green transition, and also to expand the domestic consumption.
00:05:28
Speaker
So how are they going to do that?
00:05:30
Speaker
Expand domestic consumption or move into these high-tech sort of industries?
00:05:36
Speaker
So I think in terms of the domestic consumption, that really hinges on the share of middle-income group.
00:05:44
Speaker
In all other countries, the bigger the share of the middle class, the larger the consumption will be as a share of the GDP.
00:05:52
Speaker
So China is pursuing the campaign to reduce inequality.
00:05:56
Speaker
Mm-hmm.
00:05:57
Speaker
China is a saving sort of country, right?
00:06:02
Speaker
People save and invest, that's used to invest.
00:06:04
Speaker
It's not really consumption.
00:06:06
Speaker
Saving rates are really high, consumption rates are really low.
00:06:09
Speaker
So that's an opportunity for them to grow over the course of the next couple of years.
00:06:14
Speaker
Right.
00:06:14
Speaker
So the way they do it is basically to beef up the social benefit such that people will know they can rely on the government for the rainy days.
00:06:23
Speaker
Yeah.
00:06:23
Speaker
So that's pensions, but there's also health care and these sort of things.
00:06:27
Speaker
The government needs to invest in that.
00:06:29
Speaker
So this brings us to the topic of the fiscal deficit.
00:06:32
Speaker
What is this fiscal deficit and why is that important?
00:06:36
Speaker
Right.
00:06:36
Speaker
So basically, the government would have the revenue from different things like tax and fees, collection, and also have expenditure that is to spend on social benefit, infrastructure and all different kind of things.
00:06:52
Speaker
So the difference between the revenue and expenditure is called the fiscal deficit.
00:06:58
Speaker
And naturally, you would imagine if the government is willing to take a higher deficit, that means there's more government spending.
00:07:06
Speaker
Usually government does that during the recession.
00:07:10
Speaker
Yeah, recessions in order to soften the blow, if you want to put it like that.
00:07:14
Speaker
Exactly.
00:07:16
Speaker
Technically, they call it counter-cyclical sort of stimulus.
00:07:19
Speaker
Okay.
00:07:19
Speaker
So the government is trying to spend more in order to reach these growth targets.
00:07:24
Speaker
Now, there's also been talk about special ultra-long-term treasury bonds to try to hit that particular target.
Government Bonds and Long-Term Projects
00:07:32
Speaker
Well, what is that?
00:07:33
Speaker
What makes them special?
00:07:35
Speaker
Why are they so ultra-long dated?
00:07:38
Speaker
I think the terminology sometimes make your head spin.
00:07:41
Speaker
Yeah, yeah, yeah.
00:07:42
Speaker
Nobody's in Chinese even.
00:07:45
Speaker
So here we actually have two types of treasury bonds.
00:07:49
Speaker
One is called regular treasury bond.
00:07:51
Speaker
The other is special.
00:07:52
Speaker
The special one is special because it's not counted towards the government deficit.
00:07:58
Speaker
Yeah.
00:07:58
Speaker
So it's a bit of an accounting issue.
00:08:01
Speaker
They don't count it in certain numbers.
00:08:03
Speaker
That's basically what makes it special.
00:08:05
Speaker
What about the ultra long term?
00:08:06
Speaker
What does that mean?
00:08:07
Speaker
So basically in China, what we see the most common kind of treasury tenor would be, you know, on the long end would be 10 years and some 30 years as well.
00:08:18
Speaker
But ultra long here, I think the government is thinking about 50 years.
00:08:23
Speaker
It's not uncommon, right?
00:08:25
Speaker
There are other countries that borrow for 50 years.
00:08:26
Speaker
I think there's even so few that they've looked at 100-year bonds and these sort of things.
00:08:31
Speaker
But what do they get out of issuing these sort of bonds that are so ultra long dated?
00:08:35
Speaker
Yeah.
00:08:36
Speaker
So in China, there are actually quite some infrastructure projects or strategically important investments which take a much longer term than, let's say, two years, five years, or even 10 years.
00:08:47
Speaker
In that sense, it makes sense for the government to have a longer time horizon.
00:08:53
Speaker
And by issuing such kind of bond, it can support those kind of projects.
00:08:57
Speaker
And also, the government only need to repay those bonds after the projects start to make money, maybe.
00:09:03
Speaker
Exactly, yeah.
00:09:03
Speaker
They don't have to think about repaying it for the next, say, maybe 50 years or so, right?
00:09:07
Speaker
So that's another headache that you're going to move into the future.
00:09:11
Speaker
Now, these bonds are also separated into central and local government categories.
00:09:16
Speaker
Why is that?
00:09:17
Speaker
So basically, central government treasury bond will be used for nationally relevant projects, while the local ones usually are used for the regional development, including the social benefit as well as some local infrastructure.
00:09:32
Speaker
So just to make it kind of an example here, you got spending on defense.
00:09:37
Speaker
That's a national thing, right?
00:09:38
Speaker
The local government wouldn't do that.
00:09:40
Speaker
But when you get spending on schools and hospitals, that's something that a local government needs to do, right?
00:09:45
Speaker
And they therefore have now a bit of room to do so in the coming months.
00:09:48
Speaker
That's a perfect example.
00:09:50
Speaker
Good.
00:09:51
Speaker
So just your thoughts on how achievable are these targets
Strategies for Economic Growth and Recovery
00:09:55
Speaker
now?
00:09:55
Speaker
So now we understand that they got 5% growth.
00:09:58
Speaker
They've done already something on the monetary side.
00:10:00
Speaker
They're lower of interest rates and these reserve requirements we spoke about.
00:10:03
Speaker
There's a bit more room for spending there.
00:10:05
Speaker
Also a bit of accounting going on in terms of the sort of bonds that they issue.
00:10:11
Speaker
So you feel now more confident that they're really going to get there?
00:10:15
Speaker
I think actually last year when people talk about China, they usually look at, I would call it triple headwinds.
00:10:22
Speaker
We have the technical headwind, such as from the property market.
00:10:27
Speaker
Well, you can argue that's also part of the structural headwinds because China is looking to switch into a high quality growth model.
00:10:35
Speaker
And there's also this headwind in the sense that we do see the government policy coordination last year at least was not ideal at all.
00:10:45
Speaker
And oftentimes people... You know, oftentimes people were quite disappointed that the government might say something, promise something, but the delivery wasn't as much as they promised.
00:10:58
Speaker
So this year, I think a major change is government coordination process.
00:11:03
Speaker
probably will be much better than last year.
00:11:06
Speaker
And also they have this new framework for assessing different kind of policies, including non-economic policies, and want to make sure the restrictive type of policies will be minimized if possible.
00:11:19
Speaker
So that is one upside, I guess.
00:11:22
Speaker
Another thing is, I think, how are they going to take care of the housing market correction?
00:11:28
Speaker
That is still what we get the most from the investor, the question.
00:11:34
Speaker
And I think, you know, for the housing market, actually the new dual track model is promising, which basically means for the private housing market, the government will let go the restrictions on prices, on quantities, one way or the other.
00:11:50
Speaker
Maybe we'll see continued price correction, but at least transaction volume can pick up.
00:11:57
Speaker
On the other hand, we also have this social housing.
00:12:01
Speaker
And here the catch is not just about supplying more affordable housing.
00:12:06
Speaker
That is important too, you know, that could give people more spending power.
00:12:10
Speaker
But government might also use this as an anchor, such as absorbing some of the oversupply private housing and convert that into social housing.
00:12:19
Speaker
So if this model is applied and implemented,
00:12:24
Speaker
In a much bigger scale, I think it will be very meaningful in stabilizing the housing market.
Chinese Equity Market Outlook
00:12:39
Speaker
Okay, Harold, you asked me so many questions.
00:12:41
Speaker
Now it's my turn.
00:12:43
Speaker
What does all this mean for equity market?
00:12:45
Speaker
Yeah.
00:12:46
Speaker
Now, the Chinese equity markets has not performed very well, right?
00:12:50
Speaker
I mean, down last year.
00:12:51
Speaker
Fair enough.
00:12:52
Speaker
Oh, yeah, yeah.
00:12:53
Speaker
It's probably an even understatement.
00:12:55
Speaker
In the last couple of weeks we've actually seen it starting to perform a bit, right?
00:12:59
Speaker
Given that we have so many issues at the same time going on.
00:13:03
Speaker
We have the housing market, monetary stimulus, fiscal spending, a transition in the growth model that they have.
00:13:09
Speaker
That creates simply a lot of uncertainty.
00:13:12
Speaker
And given the kind of difficult policy messages that we got last year, the sentiment has been very poor.
00:13:20
Speaker
In addition to that, we've also had US pension funds publicly stating we want to reduce our exposure to China.
00:13:28
Speaker
Now that has happened last year.
00:13:29
Speaker
They sold down.
00:13:30
Speaker
That is, of course, not good for the market.
00:13:33
Speaker
But also all the other issues has created kind of bad sentiment.
00:13:37
Speaker
People just don't know what the direction is here.
00:13:39
Speaker
So we need to turn that sentiment around.
00:13:42
Speaker
And there's a couple of ways that this can happen.
00:13:44
Speaker
One is we need to get clearer policies and we need to see that they work.
00:13:48
Speaker
Now we have an idea what they do.
00:13:50
Speaker
So we need to see now evidence that this is working out.
00:13:53
Speaker
So we need to see better numbers coming through.
00:13:56
Speaker
The second thing is that the stock market in the end is not an economy.
00:14:00
Speaker
The stock market is a bunch of companies.
00:14:02
Speaker
And we need to see that the profits of those companies, because that's eventually what a shareholder gets, that the profit of these companies also benefit from this.
00:14:11
Speaker
Because it's nice if the economy is doing well, but if you put regulations in place that the profits are not, you can't make profits or it's more difficult to make profits, then that's not good for share prices.
00:14:21
Speaker
But if the economy recovers and we see that the profits recover as well, now that would be really good for the stock market.
00:14:27
Speaker
So we need to see that.
00:14:28
Speaker
Now we're actually in reporting season.
00:14:30
Speaker
That's for last year's earnings this month.
00:14:32
Speaker
So we're going to get a bit of a better idea of where we stand in that regard.
00:14:36
Speaker
So the equity market is in kind of a wait and see mode.
00:14:39
Speaker
But let's hope it's a little bit better than 2023.
Conclusion and Future Recommendations
00:14:42
Speaker
Indeed.
00:14:43
Speaker
And on that note, Jing, thanks very much for joining me here on the podcast.
00:14:47
Speaker
Always a pleasure.
00:14:48
Speaker
Thank you, Harold.
00:14:50
Speaker
Well, we're just about out of time, but a couple of quick announcements before we go.
00:14:54
Speaker
HSBC's Global Investor Summit is just a month away.
00:14:57
Speaker
It's happening right here in Hong Kong, bringing investors, corporates, keynote speakers, and of course your own HSBC research analyst together from the 8th till the 10th of April.
00:15:06
Speaker
HSBC clients, reach out to your representative for more details.
00:15:10
Speaker
Do subscribe to Under the Banyan Tree if you haven't done so already.
00:15:14
Speaker
Likewise, follow our sister podcast, The Macro Brief, for updates and analysis on the top economic stories each week from around the globe.
00:15:22
Speaker
That's a wrap for today.
00:15:23
Speaker
We'll talk to you again next week.
00:15:50
Speaker
Thank you for joining us at HSBC Global Viewpoint.
00:15:54
Speaker
We hope you enjoyed the discussion.
00:15:56
Speaker
Make sure you're subscribed to stay up to date with new episodes.