UBS: "New Three Engines" Will Drive China's Economic Growth
UBS believes that the Chinese economy is transitioning from investment-driven growth to high-quality growth driven by domestic demand. The real estate sector is seeking new development models, while new energy vehicles are leading the global automotive industry. With policy stimulus and the low base effect, it is expected that the downward trend in China's real estate investment will ease next year. In the long term, consumer spending, green transformation, technological innovation, and industrial upgrading will become the new driving forces of the Chinese economy. It is expected that the bottom of China's real estate market will be reached in 2024, with a 5% decrease in total sales of commercial housing compared to 2023. We can expect the impact of the Federal Reserve's interest rate cuts and the normalization of yield levels on the Chinese economy.
Author | Zhou Zhiyu
The real estate industry is seeking new development models, while new energy vehicles are leading the global automotive industry. In the past few years, China has been transitioning from an investment-driven growth model to high-quality growth driven by domestic demand.
At the same time, the global economy and geopolitical landscape, as well as profound technological changes, are also impacting the global economic landscape. UBS believes that a series of changes are taking place, laying the foundation for the "new landscape" of the next decade.
At the media briefing on November 29th, Hu Yifan, the Investment Director and Head of Macroeconomics at UBS Wealth Management Asia Pacific, stated to Wall Street News that although there are different opinions in the market about China's economic growth rate next year, a series of recent policies will help the Chinese economy recover.
These policies include providing support to some high-quality real estate companies, assisting in corporate debt restructuring, providing liquidity for projects, and further expected issuance of PSL (supplementary mortgage loans) to policy banks, among others. Hu Yifan pointed out that with the implementation of these measures to stabilize the market, there are already signs of stability in the market.
Hu Yifan believes that the negative impact of real estate investment on GDP growth rate will decrease next year, and the real estate market will show a stable and positive trend. In the medium to long term, the new "three drivers" consisting of consumer spending, green transformation, technological innovation, and industrial upgrading will become the new driving force of the Chinese economy.
According to data from the National Bureau of Statistics, national residential investment in 2022 was 10.0646 trillion yuan, a year-on-year decrease of 9.5%; from January to October this year, national residential investment was 7.2799 trillion yuan, a year-on-year decrease of 8.8%. The market is concerned that real estate investment will continue to decline next year.
In response to this, Hu Yifan pointed out that with the effects of policy stimulus and a low base, it is expected that the downward trend in China's real estate investment will ease next year, with a projected decline between -5% and -8%, and the downward pressure on China's GDP will be reduced.
Previously, S&P Ratings also pointed out that 2024 will be the year when China's real estate market hits bottom. It is expected that the annual sales of commercial housing in 2024 will be around 11.5 trillion yuan, a 5% decrease from 2023. Among them, sales in first-tier cities will remain stable or slightly increase, while sales in third-tier and below cities will continue to decline.
It can be expected that as the Federal Reserve enters a rate-cutting phase next year and accelerates rate cuts in 2025, eventually returning to a normalization trend in yields, China will have more room for supportive monetary policies. Hu Yifan suggests that in addition to moderate policies such as interest rate cuts, more proactive policies can be implemented to accelerate economic recovery in the short term. This will also have a positive impact on the recovery of the real estate market.
However, as China's economic growth drivers change, the real estate sector will not return to the old path of "boom and bust".
Hu Yifan believes that overall, the real estate market will not experience a major turning point. It will mainly stabilize in its current state and make adjustments over time.
In the medium to long term, UBS believes that China is still the engine of growth in Asia and will rely mainly on the new "three drivers" to drive economic growth in the next five to ten years. Hu Yifan explained that although there is a trend of consumer downgrading in the short term, whether it is the increase in consumer power brought about by China's economic growth, the improvement in service-oriented consumer demand such as personal health and personal medical care, or the silver economy, all of these will make consumption a very important pillar in the Chinese economy.
In addition, the green economy formed by green energy, energy storage, electric vehicles, etc., as well as the stable upgrading of R&D expenditure by Chinese enterprises, breakthroughs in technology, and the upgrading of industry and manufacturing, will all become new driving forces for future economic growth in China.
Electric vehicles, intelligent manufacturing, AI, and so on, are also the sunrise industries that are currently attracting capital.
Although the global economic slowdown will continue to affect global assets and markets in the coming period, there are still opportunities during this phase. UBS believes that from artificial intelligence, energy innovation to healthcare innovation, they will bring about transformation in various industries, and the next decade will witness a wave of technological disruption.
In the complex and volatile "new world", as industries rise and fall, new growth opportunities are also brewing.