KPMG has just published its latest China economic monitor for the third quarter of 2024, which assesses the country's economic outlook.

Despite concerns over China’s slowing economy and geopolitical tensions, a new report by KPMG shows that China's gross domestic product was quite stable in the first half of 2024, growing 5 per cent year-over-year, reaching the government’s target. The government is also expected to adopt a more accommodative macro policy stance in the second half of 2024 to help economic recovery.

According to the report, the economy grew 4.7 per cent in the second quarter of 2024, down from 5.3 per cent in the first quarter and lower than market expectations. Extreme weather, adjustments to calculations of the value of the financial industry, and sluggish domestic demand weighed on economic growth, the report reveals.

The momentum of consumption slowed down with a decline in income growth. The growth of retail sales fell to 2.6 per cent in the second quarter from 4.7 per cent in the first quarter. Consumption is expected to recover moderately in the second half of 2024, KPMG added. The government has also identified that boosting domestic demand through consumption should be paramount in the second half of 2024. It sees service consumption as an important lever for expanding and upgrading consumption, supporting sectors including culture and tourism, elderly care, housekeeping, childcare, and so on.

Meanwhile, the report shows that manufacturing investments held up relatively well, with a growth rate of 9.3 per cent in the second quarter of 2024. The expansion of equipment renewals is expected to sustain robust growth in manufacturing investment.

Growth in infrastructure investment dropped slightly to 7.2 per cent in the second quarter of 2024 from 8.8 per cent in the first quarter. Government investment slowed down due to extreme weather and tightened fiscal spending. With issuances of local government special bonds and extra long-term special treasury bonds speeding up, however, infrastructure investment is expected to remain robust, KPMG said.

Despite recent government incentives, the property market is still struggling with weak sales and sluggish investment. Real estate investment declined by 10.5 per cent in the second quarter of 2024. To increase housing demand and promote activity in the property market, policies to stabilise home prices and reduce housing inventory will be implemented in the second half of 2024.

Due to continuous improvement in external demand, exports rose by 3.6 per cent year-on-year in the first half of 2024, with robust growth of 5.8 per cent year-on-year in the second quarter. China's trade with emerging markets has seen fast growth, reflecting strengthened regional collaborations. Meanwhile, the optimisation of the structure of export commodities is continuing. Exports are expected to remain resilient through 2024, the report shows.

Overall, as a result of the implementation of policies to renew equipment and recover external demand, China's GDP growth has remained relatively stable in the first half of 2024. However, domestic demand is still insufficient. The downturn in prices has had a direct effect on incomes, corporate profits and fiscal revenues, constraining spending. In addition, growing foreign trade tensions may weigh on China's exports. The government is expected to adopt a more accommodative macro policy stance in the second half of 2024 to enable the recovery of economic growth, the report states.

Shanghai-based Maggie Sun, senior portfolio manager at Japanese-headquartered Sumitomo Mitsui DS Asset Management, is also optimistic about China’s outlook. She believes that Chinese equities are attractively valued. “The worst is now behind China, even if the property market might take longer than expected to recover significantly,” Sun told this news service. See more commentary here.