The Chinese economy in 2024

China in the 21st century has driven shipping’s fortunes. Pick a commodity and invariably China is its largest importer - whether its coal, iron ore, oil or gas. Likewise, as the manufacturing centre of the world, the People’s Republic handles one in two containers, and for those wanting to understand why the car carrier trades have been so profitable this year, look no further than China. The rise of China was voted by Splash readers as the story of the previous decade, beating out liner consolidation, green developments and digitalisation in the process. Come the 2020s, however, the Chinese economy has come under pressure and scrutiny , the double digit gross domestic product (GDP) growth of previous years is long gone. Nevertheless, the country is resilient, riding through many economic crises of late such as covid or the immense property bubble. GDP growth this year is on track for 5.4% Come next year, forecasts are for slower growth. The World Bank and JP Morgan are suggesting 4.4% growth, Capital Economics’ latest prediction is 4.5%, the International Monetary Fund reckons 4.6%, Macquarie Bank has pegged it as 4.7%, and slightly more bullish at 4.9% is HSBC. The twin processes of urbanisation and industrialisation in China have matured Burak Cetinok, head of research at brokers Arrow, points out that while at face value, forecasts ranging from 4.4% to 4.9% imply a slowdown in the Chinese economy in 2024, nominal GDP growth is likely to pick up slightly due to a higher comparison base in 2024. “State-led infrastructure investments, manufacturing, exports and consumption will likely be the drivers of growth next year,” Cetinok reckons, adding: ”The property market is showing signs of stabilisation but the road to recovery will be a long and bumpy one.” Overall, Arrow’s research team is constructive on the Chinese economy in 2024. “As such, “ Cetinok says, “commodity demand will likely show modest gains next year, after posting a very strong growth in 2023.” Following China’s GDP projections too closely is a fool’s errand for global shipowners, argues Dr Roar Adland, global head of research at brokers SSY. “Anyone trading freight in 2023 based on reading all the pessimistic headlines and takes on China's financial and macro conditions would have done rather poorly,” Adland notes, adding: “While GDP growth rates aren't entirely irrelevant for global commodity shipping demand, the analysis can probably be simplified to a yes/no question: Do you think China will implode? We don't think it will and aim for business as usual.” US elections weigh heavily Abhishek Pandey, the global head of shipping finance for Standard Chartered Bank, tells Splash Extra a key event to watch out for regarding the Chinese economy next year is something that will take place thousands of kilometres away on the other side of the Pacific, namely the US presidential election. “US-Chinese trade seems to have stabilised since Biden’s presidential term in 2021 and this relationship has been consolidated following the recent Biden-Xi meeting at the APEC summit,” Pandey says. “Uncertainty to US-China trade could return if President Biden fails to win a second term.” Standard Chartered reckons China’s GDP growth will slow next year to 4.8% weighed by a sluggish housing market and weak domestic consumption. China and dry bulk Focusing on China and dry bulk, Rahul Kapoor, global head of shipping analytics and research at S&P Global Commodity Insights, expects Chinese demand of steel and iron ore to have stable growth despite what he sees as a weak long-term Chinese growth trajectory. “Overall, after declining by 1.1% in 2022, dry bulk demand is expected to increase by 2.5% in 2023 with recovery in iron ore and grain shipments and settling at 2.5% in 2024,” Kapoor predicts. “It’s probably questionable if China can really come to markets and absorb as much or more commodities as it has done this year,” says John Michael Radziwill, who heads up dry bulk pool C Transport Maritime. Drilling down to the two most important dry bulk commodities, Arrow’s Cetinok points out that China’s coal imports surged this year on the back of strong power demand, low hydro generation and strategic stock building. However, inventory levels have reached record highs, and hydropower generation has seemingly normalised. Commodity demand will likely show modest gains next year “There is a high risk of a decline in coal imports into China next year,” Cetinok warns, before turning his attention to iron ore, which has a more positive note for shipowners. “Iron ore inventories linger around the lowest seasonal levels in years while steel production remains healthy. Unless there is a sharp drop in steel output, which we do not anticipate, restocking is quite likely ahead of the seasonally strong Q2 and Q3,” Cetinok says. China bear Among those polled by Splash Extra, Mark Williams, the founder of UK-based consultancy Shipping Strategy, is clearly the most bearish about prospects for the Chinese economy. “China’s economy is deflating, triggering numerous factory closures,” he says, pointing to recent data from the East Asia Forum showing that factory productivity in China has fallen 4.8% this year. “Part of the problem is that President Xi’s anti-corruption drive has focused on the private sector, removing upstart magnates from Jack Ma downwards, so that private enterprise investment is tumbling. The state supports large, inefficient state owned enterprises,” Williams says. Deflation can lead to lower consumption as consumers put off buying decisions, leading to lower future demand. Monetary policy such as reducing interest rates can be ineffective in this context as the lower demand forces more factory closures, increasing unemployment, which is already running at over 20% for the under 25s. “Xi Jinping thought calls for a switch from export-led growth to a domestic-led market, but the demographics are a distinct flaw in the reasoning. And China is facing headwinds in overseas trade. China lost first place in the list of exporters to the US this year, with Mexico taking the crown,” Williams points out, concluding: “The bottom line is that the twin processes of urbanisation and industrialisation in China have matured.” For Williams, China’s peaking demographics point to an economic experience like that of Japan, “but ten times bigger”. Year of the Dragon Ending on a more positive note, SSY’s Adland reminds Splash Extra that in February next year, China will enter the Year of the Dragon. “In Chinese culture,” Adland explains, “the thinking around the cycle of zodiac animal signs goes something like ‘the bigger the animal, the smaller the problems’ - and the dragon is the biggest animal. More specifically, it also represents confidence and innovation, and if a billion Chinese buy into that positivity then we could be in for a better outcome than most expect.”

The Chinese economy in 2024

No nation is more pivotal to shipping’s fortunes than the People’s Republic. Splash Extra explores the prospects for the Chinese economy in the year ahead.

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