The world’s second largest economy is undergoing a major transformation and is looking for new drivers of growth, according to China’s central bank governor.
“China is experiencing a transition in its economic model,” Pan Gongsheng, the governor of the People’s Bank of China, told a group of international bankers at a conference in Hong Kong on Tuesday. “High-quality, sustainable growth is far more important.”
The country is moving away from manufacturing and real estate, its traditional drivers of growth, towards a newer economic model driven by consumption and services, he added.
He also emphasised that China will achieve its target for growth of “around 5%” this year.
“Looking ahead, China’s economy will remain resilient,” Pan said. “I’m confident China will enjoy healthy and sustainable growth in 2024 and beyond.”
His remarks come at a time when China is battling a protracted recession in its vast real estate sector. The country’s post-pandemic rally fizzled out in the second quarter this year, with GDP growing at a worse-than-expected rate of 6.3% from a year earlier, when many cities were in lockdown.
Growth picked up some momentum in the third quarter and expanded 4.9% from the same period last year, surpassing market expectations. Consumption and industrial production showed “good growth” last month, Pan said.
But the country’s real estate sector is still struggling with sluggish sales and falling home prices.
The sector had boomed for three decades, thanks to a rising population and rapid urbanisation. In total, it accounted for as much as 30% of China’s GDP.
It fell into crisis in 2020 after regulators started cracking down on developers’ reckless borrowing.
As a result, some of the country’s biggest developers, including Evergrande and Country Garden, have defaulted on their debts, and the financial fallout is spilling over into the $2.9 trillion shadow bank industry.
Pan sought to ease global investors’ concerns about the property slowdown and debt risks.
“China’s real estate market is experiencing some adjustments,” he said. “In the long run, such adjustments are beneficial for the transition of China’s economic model.”
Pan said the housing market, after decades of rapid expansion, is “in the middle of a major transformation.” Demand is still solid in bigger cities, but has declined in third and fourth-tier cities, he said.
The spillover effect from the property sector to the financial system is “quite limited,” Pan added.
Pan also pledged to keep monetary policy “accommodative” to support the economy, although inflation is “bottoming out” and consumer prices are expected to go up in the coming months.
On Monday, the PBOC joined seven other government departments in rolling out 25 measures to strengthen financial support for private firms, as part of their latest efforts to prop up growth.
On the same day, the central bank released a quarterly report on its monetary policy, in which it pledged to ensure sufficient liquidity.
It will “unblock the monetary policy transmission mechanism, enhance the stability of financial support for the real economy, promote a virtuous economic and financial cycle, and keep prices reasonably stable,” the report said.
The Chinese government has taken several other steps to boost the economy this year. Just last month, the legislature approved one trillion yuan ($141 billion) of additional sovereign bonds to finance infrastructure projects. The regulators have also introduced a raft of measures to stabilise the real estate industry, including reducing mortgage rates for home buyers.
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