China’s GDP growth slowed during the first three quarters of 2024, from 5.3 per cent to 4.7 per cent, and to 4.6 per cent, raising fears that the country would not achieve its annual target of around 5 per cent. But the latest data suggests the economy is finally turning the corner.
Economic activity in China has been relatively weak since the Covid-19 crisis. This was not unexpected, at least not at first: three years of pandemic lockdowns strained household, corporate and local government balance sheets. Declining business confidence – partly a response to a regulatory crackdown on finance, the property sector and the platform economy – did not help matters.
In early 2021, when the United States emerged from the worst of its pandemic lockdowns, American households quickly began spending the money they had accumulated. Chinese households, by contrast, continued to accumulate savings even after the lockdowns had ended. Between January 2020 and August 2024, household bank deposits in China swelled by 65.4 trillion yuan (US$9 trillion), with the wealthy accounting for a significant share.
China’s government introduced some supportive policies over this period but, in contrast to past disruptions, it refrained from implementing aggressive stimulus policies, owing to concerns about possible side effects. The massive stimulus package Beijing introduced after the 2008 global financial crisis spurred growth, but it also fuelled a property bubble, drove up local government debt and reduced investment efficiency.
The government’s calculations changed at the end of the third quarter, when it became clear that the economy would need more help to lift its growth trajectory. In late September, People’s Bank of China governor Pan Gongsheng unveiled three measures: a reduction in banks’ reserve ratio, a policy rate cut, and the creation of monetary policy instruments to support the stock market.
Moreover, on October 12, Lan Foan, China’s finance minister, announced that new fiscal measures would focus on addressing local-government debt problems, stabilising the property market and supporting employment. He followed this announcement in early November with a 10 trillion yuan debt-swap plan for local governments.
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