Economic growth accelerated from 4.6% YoY in Q3 2024 to 5.4% in Q4 2024, with a sequential growth from 0.9% QoQ in Q3 2024 to 1.6% in Q4 2024. Initial signs of stabilization were shown throughout Q4, as ongoing stimulus measures took effect. Industrial production remained resilient, supported by both external demand and domestic equipment upgrade initiatives. Consumption was also supported by the home appliance trade-in program. However, fixed asset investment and loan growth remained lackluster. With challenges persist, including a property market downturn and potential geopolitical tensions, further easing is needed to finance the upcoming fiscal stimulus, to achieve another 5% GDP growth in 2025. We expect there will be a 50-bps cut 1-year Loan Prime Rate (LPR) this year.

Trade

Resilient external trade stayed as a bright spot in 2024. Frontloading activities spurred external demand ahead of new US tariffs, driving exports growth to accelerate from 5.1% YoY in November to 10.7% in December, resulting in full-year export growth of 5.9%. High-tech products, electronics, and automobiles demonstrated resiliency and saw the strongest expansion among major product categories during the year. Traditional products such as agricultural and textile goods also experienced a further uptick in December.

Early indicators, such as the Caixin SME exporter-focused index, remained in expansionary territory at 50.5 in December. The official new export orders sub-PMI also saw a further increase from October. The strong output sub-PMI at 52.1 was also aligned with the resilient growth in industrial production.

Industrial production

Industrial activities held up well on both steady external and domestic demand. Industrial production increased from 5.4% YoY in November to 6.2% in December, with full year growth accelerated to 5.8% YoY in 2024. EV and solar cells production grew by 38.7% and 15.7 YoY. Industrial robotic also surged 14.2% YoY amid equipment upgrade initiatives. Production in ferrous and non-ferrous metal smelting and processing industry grew steadily by 4.0% and 9.7% YoY, indicating a gradual pick up in domestic demand.

Fixed asset investment

Headline fixed asset investment (FAI) grew at 3.2% YoY last year. The contraction of -0.1% in the private sector and -20% in foreign direct investment remained as key drags. State sector investment, as the key driver of FAI growth, grew steadily at 5.7% YoY YTD. Utility and infrastructure investment are leading the march. Backed by the government initiative, equipment and tools purchase increased by 15.7% in 2024. Spending in both general and professional equipment saw double-digit growth.

Property

Real estate investment was a drag, down 10.6% in 2024, with residential floor space starts decreasing 23.0% YoY. Property developers are prioritizing the completion of unfinished homes, resulting in a relatively smaller decline in completed floor space. Residential inventory further improved from record high 32 months to 23 months as of November, amid the narrowing decline in primary market sales in 300 cities.

Retail sales

Retail sales growth uptick further from 3.0% YoY in November to 3.7% in December, with full year growth staying at 3.5% YoY. Spending on household electronic appliances saw a significant jump, surging from 2.3% YoY YTD in July to 12.3% in December, driven by the ongoing trade-in program. Communication appliances also recorded a robust 9.9% increase over the 2024 full year. The decline in automobile sales narrowed, with retail sales of new energy vehicles rising by more than 40% in 2024.

The government has further expanded the list of home appliance products eligible for the consumer trade-in scheme earlier this month. Hopefully, the CNY300 billion consumption upgrading subsidy, equivalent to 0.6% of retail sales, will help offset the impact from the negative wealth effect stemming from asset markets.

Money supply

M1 measure stabilized amid improving consumer sentiment. The decline in M1 narrowed from a historical low of 7.4% YoY in September to -1.4% in December, while broader M2 growth stayed above 7%. The gap between short-term M1 and time deposit M2 growth narrowed, suggesting households are more willing to hold liquid cash for consumption, likely due to ongoing stimulus measures.

Weak credit demand remained a concern. Loan growth reached another record low from 7.7% YoY in November to 7.6% in December. New medium- to long-term corporate loans dropped 26% YoY this year, due to persistent pressure on new corporate borrowing amid high real financing costs. Similarly, new household medium- to long-term loans, primarily mortgages, fell 12% YoY in 2024, amid declining property prices.

Inflation

Consumer prices edged down further, declining from 0.2% YoY in November to 0.1% in December. The retrenchment is largely driven by falling food prices, especially a double-digit decline in beef. Lower energy prices have also dragged the transportation and communication CPI down by 2.2%.

On a brighter note, the core CPI, which excludes food and energy, picked up from 0.1% YoY in September to 0.4% in December. This suggests that consumer sentiment has seen some relative improvement as the impact of recent stimulus policies started to unfold. Meanwhile, the Producer Price Index (PPI) registered its 27th consecutive contraction of -2.3% as overcapacity persists.

Looking ahead

Against this backdrop, The People's Bank of China (PBOC) will likely stay on its easing stance. During the Asia Financial Forum in Hong Kong, the PBOC governor said the government will impose various tools, including interest rate cuts and required reserve ratio reductions, to maintain sufficient liquidity in the market. We expect a 50-basis point (bps) cut to the 1-year Loan Prime Rate (LPR) this year, accompanied by balance sheet expansion. As Beijing plans to raise the fiscal deficit in 2025, more treasury bonds will be issued, likely prompting the central bank to restart its CGB buying program, which is temporarily halted this month.

The near-term downside risk on Chinese government bond (CGB) yields could be limited. Note that both 2-year and 10-year CGB yields have already fallen from 2.21% following the announcement of stimulus policy in September to 1.60% levels of late. The central bank may favor exchange rate stability at this juncture instead. In fact, the regulators have temporarily halted the government bond buying program. We expect the 10Y CGB yields will rebound before heading south towards 1.50%.

For our 2025 forecast of 5% to be achieved, additional fiscal and monetary easing, including  50bps of policy rate cuts by PBOC, would be needed.

To read the full report, click here to Download the PDF.

Mo Ji, Ph.D. 纪沫

Chief China Economist - China & Hong Kong 首席中國經濟學家 - 中國及香港

[email protected]

Nathan Chow 周洪禮

Senior Economist and Strategist - China & Hong Kong 高級經濟學家及策略師 - 中國及香港

[email protected]

Byron Lam

Economist

[email protected]

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