Why is China’s factory activity growing more slowly?

CGTN Europe interviewed Kelvin Lam, Senior China Economist at Pantheon Macroeconomics.

Transcript

00:00Well, Kevin Lam is a senior China economist at Pantheon Macroeconomics.

00:06Construction PMI and service PMI activity shorts out, but that's largely because of seasonal

00:14demand. Manufacturing PMI still dropped in December to just about 50. So what I can say

00:21about activity is finally stabilizing at best. So in a nutshell, you know, the details of new

00:26manufacturing orders are rising, but that's largely due to slowing export orders and domestic

00:32demand is just bobbing along. So there are lots of problems in the Chinese economy and the culprit

00:39remains to be the property sector. Why is that? It's because about 60, 70% of household wealth

00:46are tied to it, tied to the property assets. And people are, you know, people who are already on

00:54the property ladder, i.e. the middle class, are more reluctant to spend on discretionary items

00:59as a result. But I think that, you know, the Chinese leadership knew about this. They're

01:04trying to devise policy to stop economic deflationary expectations from building an economy.

01:10So that's why you see them doing the policies that are made in the Central Economic Work

01:19Conference and the Politburo statements that they're going to do more moderately

01:24monetary policy and also more active, proactive fiscal policy to prop up the economy.

01:33OK, well, look, that's a historical snapshot. Let's look ahead. President Xi

01:38hoping, aiming for 5% GDP growth. Is that realistic?

01:43I think the market shouldn't focus too much on the GDP growth target, as what China is

01:50achieving at the moment is the quality of GDP growth. I think this is the major difference

01:55that Xi Jinping in power, he wanted to achieve more quality growth. And as you probably know,

02:01that, you know, the GDP growth number is not always accurately reflecting economic activity

02:06in China. It's better to shy away from it and look into the nuances in the economy to see whether

02:12the economy is good or bad. The PMI is one good indicator to look at. But we expect China to

02:18achieve the lower bound of the about 5% target for this year. And for next year, we expect

02:26Xi Jinping to keep his 5% targets in the next NPC meeting. Recently, I think the NBS revised

02:35the GDP data, I think on the 27th of December. And that probably will reshape what everyone

02:42thinks about achieving a target or not. I think we are all looking into that at the moment. And

02:46hopefully that will give us some good news. Well, let's talk about hoping for some good news.

02:52China doesn't exist in a vacuum, of course, it exists in the real world economy. And that real

02:57world has all sorts of troubles ahead that are carried over from past years. President Trump

03:05is coming to office and perhaps further tariffs. Those wars look like they're not going to stop

03:11anytime soon. The demographics remain troubling. What is your global outlook for 2025?

03:19I think 2025 for the world will be beset by escalating geopolitical tensions,

03:27and also potentially some punitive tariff policies from the states. And the differences

03:37in 2025 and the previous years is that, according to what happened in the first

03:44Trump administration between 2016 onwards, uncertainty persists throughout the

03:53presidencies. And we expect unexpected policies from the US to dominate global growth going

04:00forward. I think for China, particularly the punitive tariff that might jack up to 60%

04:06will hurt Chinese profits and also growth. But China will definitely mitigate some of these

04:15pressures by depreciating its currency. But it depends on how much the US can slap the tariff on.

04:21So it will be a very volatile year, we think. The economic data coming out will be sometimes good,

04:30sometimes bad. And let's wait until the property sector in China to revive and domestic demand to

04:35revive. Then we will have better years ahead.