-
""

Macro - China

Is China having its ‘big bazooka’ moment?

15 November 2024

Lukas Gehrig, Zurich, Switzerland, Quantitative Strategist

Key points

  • Chinese growth has slowed in 2024 and the outlook for 2025 does not look much better.
  • A property bust and an anticipated soaring number of those aged over 65 in the coming decade are among factors depressing the economic outlook. 
  • But the authorities have announced a series of measures designed to manage debt and revive growth.
  • However, turning the Chinese economy around might require even more support.

The Chinese economy has slowed in 2024 and is forecast to grow by 4.8%. The outlook for 2025 is not bright, with gross domestic product (GDP) expected to expand by only 4%. At the heart of the troubled outlook is the consumer, who has seen their savings slashed since the bursting of a housing bubble in 2022, in turn hitting confidence and propensity to spend.

Source: Barclays Investment Bank, November 2024

Troubled housing sector

Chinese household wealth has been slashed by 30% of late, with rising debt levels and stubbornly low levels of inflation (forecast to be 0.5% in 2024 and 1.2% for 2025). Japanification is a term often used by economists these days in relation to the country, due to the similarities between its economy of today, and the Japanese one after the bursting of its property bubble in the 1990s.

One economist, Takatoshi Ito, came up with a measure for the extent of Japanification evident in an economy. Applying this to the current Chinese figures, suggests, ironically, that the country has just overtaken Japan, (see chart).

China’s Japanification surpasses Japan

The Japanification Index is a gauge for the macroeconomic trends that defined the drawn-out depression that the Japanese economy experienced after 19901

Sources: Bank for International Settlements, US Bureau of Labour Statistics, International Monetary Fund, Japanese Statistics Bureau, OECD, United Nations, Barclays Private Bank, October 2024

Following the Japanese playbook?

While the bursting of an asset bubble, debt-depressed consumers and deflationary risks indeed suggest similarities between China and Japan, there are also differences, both to the advantage and disadvantage of the former.

The leadership has the advantage of knowing the Japanese playbook, seeing how long the healing process can take, and understanding what extreme measures might be called for. It also has made technological advances in key worldwide industries (green tech and industrial digitisation).

On the downside, the Chinese population is ageing much faster than the Japanese population of three decades ago. Household budgets are more strongly affected, due to property making up double the share of household wealth, than it did for Japan.

Moreover, the latter’s crisis hit at a time of relative geopolitical calm, whereas China’s bust is unfolding with considerable turmoil around the world, that could spark a flurry of trade impediments in 2025. With the re-election of President Trump, we deem further escalation of trade restrictions and tariffs very likely.

Concerted fiscal and monetary policy efforts

The good news is that the People’s Bank of China is very much aware of the potential costs of doing too little, too late. The authorities unveiled in October that many measures from the counter-cyclical policy playbook were being considered or actioned, including recapitalising large Chinese banks, cash handouts to consumers plus a significant intervention in the housing market.

As a first step, in November Beijing announced a fiscal package to tackle local government debt problems. At the same time, austerity initiatives for public servants were put in place, with long-term debt sustainability in mind.

While the stimulus measures may be encouraging for the country’s short-term economic prospects, the long-term demographic outlook is depressing. China has one of the fastest-ageing populations, with the population aged over 65, ballooning from 12% of the total in 2020 to 20% by 2032, according to United Nations’ estimates2.

Plenty of investment opportunuties, during a turbocharged transition

Worrying demographic trends and significant trade tensions put the Chinese leadership under a lot of pressure to act. Demographics, in particular, puts a lid on how high Chinese growth can go in coming years – the figure is potentially no higher than 5%.

However, that does not make the country uninvestable. To the contrary: a flurry of stimulus measures and a re-orientation of the nation’s industries leave ample opportunity to up exposure to the area. China has emerged as the world’s leading producer in many high-tech sectors, including solar panels, lithium batteries and wind-power equipment – a position that will be very hard to wrestle from it, despite all the trade tensions.

""

Outlook 2025

In the aftermath of the US election, our bumper “Outlook 2025” analyses what might drive financial markets next year.

Disclaimer

This communication is general in nature and provided for information/educational purposes only. It does not take into account any specific investment objectives, the financial situation or particular needs of any particular person. It not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful for them to access.

This communication has been prepared by Barclays Private Bank (Barclays) and references to Barclays includes any entity within the Barclays group of companies.

This communication: 

(i) is not research nor a product of the Barclays Research department. Any views expressed in these materials may differ from those of the Barclays Research department. All opinions and estimates are given as of the date of the materials and are subject to change. Barclays is not obliged to inform recipients of these materials of any change to such opinions or estimates;

(ii) is not an offer, an invitation or a recommendation to enter into any product or service and does not constitute a solicitation to buy or sell securities, investment advice or a personal recommendation; 

(iii) is confidential and no part may be reproduced, distributed or transmitted without the prior written permission of Barclays; and

(iv) has not been reviewed or approved by any regulatory authority.

Any past or simulated past performance including back-testing, modelling or scenario analysis, or future projections contained in this communication is no indication as to future performance. No representation is made as to the accuracy of the assumptions made in this communication, or completeness of, any modelling, scenario analysis or back-testing. The value of any investment may also fluctuate as a result of market changes.

Where information in this communication has been obtained from third party sources, we believe those sources to be reliable but we do not guarantee the information’s accuracy and you should note that it may be incomplete or condensed.

Neither Barclays nor any of its directors, officers, employees, representatives or agents, accepts any liability whatsoever for any direct, indirect or consequential losses (in contract, tort or otherwise) arising from the use of this communication or its contents or reliance on the information contained herein, except to the extent this would be prohibited by law or regulation.