In 2024, China's national economy achieved a good start, with GDP growth of 5.3% year-on-year in the first quarter, which exceeded the market expectations. Many international investment banks raised their expectations for China's economic growth this year.
"At the end of last year, we predicted that China's economic growth would be 4.9% in 2024. In March this year, we made an adjustment to raise the forecast of economic growth for the whole year to 5.2%," said Zhu Haibin, chief economist in China and head of economic research in Greater China of JPMorgan Chase.
On May 22, at the media conference of JPMorgan Chase Global China Summit in 2024, Zhu Haibin explained that the strong performance of China's economy in the first quarter of this year was mainly driven by production, which showed that the year-on-year growth of industrial added value was higher than that of the entire economy. The high increase of industrial added value, on the one hand, lies in the remarkable export performance since this year; On the other hand, it is also related to the high growth of manufacturing investment supported by domestic policies, especially in some high-tech sectors, such as new energy, batteries, advanced manufacturing, etc.
In addition, since 2024, Asian currencies such as the yen and the Korean won have experienced a trend of devaluation, and the RMB has also faced some pressure of devaluation. With regard to the trend of the RMB exchange rate that the market is concerned about, Zhu Haibin believes that the short-term RMB will face certain depreciation pressure against the US dollar, and the degree of pressure depends more on the timing and speed of interest rate reduction by the Federal Reserve. Once the Federal Reserve starts to cut interest rates in the second half of the year, the pressure of interest margin factors on RMB, even yen depreciation, will be significantly weakened. Therefore, it is predicted that the RMB exchange rate against the US dollar will fluctuate slightly this year, about 7.2~7.3.
The positive signal of real estate policy is obvious, but the recovery of demand still needs to be cautious
"Exports have performed well since the beginning of this year, especially in terms of the volume of exports. We calculated that in the first four months, China's exports grew by double digits, more than 10%, which is a good start." Zhu Haibin said that it is expected that China's export growth this year will be basically equal to the growth of global trade, that is, China's share of the global export market will remain in the range of 14%~15%.
He further explained that there are multiple factors behind the impressive performance of exports. On the one hand, the global economy as a whole is better than expected. In the first quarter of this year, the global economic growth rate rose from 2.6% in the fourth quarter of last year to 3.2%~3.3%. The overall external demand environment is improving. On the other hand, this is also closely related to China's strategy of strengthening export diversification and decentralization, which is reflected in the continued increase in the export share of emerging markets and the continued increase in the export proportion of products such as "new three kinds". In addition, the price competitive advantage of China's export products has been strengthened.
From the perspective of investment, the investment in manufacturing industry performed well, but the first four months of real estate investment was nearly 10% negative growth, and the sales, commencement, completion and other indicators of new houses fell year on year. This has also led to the recent new round of real estate stimulus policy. On the one hand, the demand side central bank led to further relax the housing loan policy, reducing the down payment ratio of the first house to 15%, the lowest in history. On the other hand, local governments are encouraged to purchase inventory houses and turn them into security houses and rental houses. The central bank has launched 300 billion yuan of refinancing funds, which is expected to support 500 billion yuan of bank credit, and may eventually reach 600 billion to 700 billion yuan.
"The policy of guaranteed delivery and destocking is in the right direction. It supports local governments to purchase unsold housing through refinancing and turns the stock of commercial housing into affordable housing and rental housing, which has multiple positive effects." Zhu Haibin said, on the one hand, increasing the construction of affordable housing and rental housing can partly hedge against the decline of commercial housing investment; On the other hand, it can speed up the de stocking of real estate and relieve the inventory pressure. At the same time, it can also indirectly stimulate domestic demand. By increasing the supply of affordable housing and rental housing, it will help improve the consumption capacity of beneficiary families and accelerate the process of citizenization.
Although the positive signal of the policy is obvious, Zhu Haibin also mentioned that the recovery of real estate demand needs to be cautious. Factors that lead to insufficient demand, such as household income expectations and market expectations for housing prices, need further relaxation of policies and further adjustment of the market.
In addition, consumption, service industry and infrastructure industry are relatively neutral, and the growth rate is equal to the overall economy. "At present, the overall performance of China's economy in the first quarter of this year has made a good start. Of course, there are still some uncertainties in the economy, such as the sustainability of real estate and consumer recovery, which is an area we are more concerned about," said Zhu Haibin.
In terms of inflation expectations, Zhu Haibin believes that both CPI and PPI will rise slowly this year, and the pressure of low inflation is still likely to continue. "On the whole, the recovery of the production side is stronger than that of the consumer side, or the recovery of the secondary industry is stronger than that of the tertiary industry, and China still faces the problem of insufficient domestic demand. We also call on the government to introduce more policies to stimulate domestic demand and consumption.
It is expected that the RMB/USD exchange rate will fluctuate slightly between 7.2 and 7.3 in the year
Since 2024, the US dollar index has remained strong, which has put pressure on the currencies of many countries. Among them, Asian currencies such as the Japanese yen and the Korean won have experienced a trend of depreciation, and the RMB has also experienced some pressure of depreciation. Against this background, what will be the trend of the RMB exchange rate this year?
Zhu Haibin said that since the beginning of this year, the market's expectation of the pace of interest rate cuts by the Federal Reserve has been greatly adjusted. At the beginning of the year, it is generally expected that interest rates will be cut 6~7 times this year, and now it is reduced to 1~2 times. The long-term bond interest rate of the United States is rising, the dollar is strengthening again, the yen has plummeted, and the RMB is also facing short-term devaluation pressure against the dollar. However, from a fundamental point of view, there are still many factors supporting the relative stability of the RMB. For example, from a trade perspective, China's current account surplus has basically remained between 1% and 2% of GDP in recent years, which is within the acceptable range of sustainable surplus and supports the RMB exchange rate.
"Recently, the market has paid more attention to the impact of interest margin on the bilateral exchange rate. In the short term, the RMB will face certain depreciation pressure against the US dollar, and the degree of pressure depends more on the timing and speed of interest rate reduction by the Federal Reserve. Once the Federal Reserve starts to cut interest rates in the second half of the year, the pressure of interest margin on the People's Currency, even the depreciation of the yen, will be significantly weakened. Therefore, we predict that the RMB exchange rate against the US dollar will fluctuate slightly this year, probably between 7.2 and 7.3. " Zhu Haibin said.
In addition, Zhu Haibin believes that the next round of interest rate cut will probably take place in June, according to the prediction of the time point of interest rate cut by the central bank this year, which the market is concerned about. "Combined with the economic data in April, although we predict that the CPI and PPI will gradually improve in the second half of the year, it is still an important factor that restricts the improvement of macro, including corporate profit cycle. Therefore, in the face of low inflation pressure, interest rate reduction is also one of the coping policies."
Zhu Haibin believes that the factors that affect the time point of the central bank's interest rate cut are mainly internal and external. The external factors are related to the time point and speed of the Federal Reserve's interest rate cut. Internally, the interest margin of the banking system is close to the historical low. The time point and strength of the central bank's next interest rate cut largely depend on the reform of the bank's deposit and loan interest rates. By reducing the cost of the debt side, So as to continue to push down the financing cost of the real economy.
