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China’s economy grew 5.2% last year, after expanding just 3% in 2022. For investors used to prepandemic rates of 6% or more, that is a remarkably weak performance. Barring a big policy shift, though, 2024 will probably bring more of the same.

There were a few bright spots in the monthly data for December, released Wednesday. Year-over-year growth in investment, after eight straight months of deceleration, leveled off in November and ticked up modestly last month. That fits with somewhat easier monetary conditions since November, too: Growth in outstanding debt and equity finance rose to 9.5% from a year earlier last month, the fastest pace since May.

But the big picture is still sobering.

Real growth in urban disposable income was just 4.8% last year, according to official data. Excluding 2020 and 2022, that was the lowest since at least 2002, and nearly a full percentage point lower than the quarterly average from 2016 to 2019. Consumer confidence remains in the doldrums, consumer lending is barely growing at all, and house prices continue to drop.

Easier financial conditions may help local governments and overleveraged “shadow bank” lenders such as trusts refinance debts and stave off a full blown financial crisis. But there are few signs of a return to robust growth—or a real bottom in the critical real-estate sector.

That isn’t to minimize what the government has been doing with monetary policy, some of which could eventually trickle down into property. Short-term borrowing rates and Chinese government bond yields, all of which had moved worryingly high in the late fall, have now dropped.

One reason is that the central bank has ramped up cash injections through its special lending facilities. The People’s Bank of China funneled a net 800 billion yuan, equivalent to $111 billion, into the banking system through its key medium-term lending facility in November—the highest one-month total on record. It added another 350 billion yuan through its “pledged supplementary lending facility.”

The latter is notable because, in the wake of the last real estate crash in 2015, this facility was used by China’s policy banks to help households and ultimately property developers through what was euphemistically known as “slum redevelopment.”

It isn’t clear that things will unfold the same way this time—Beijing’s yearslong campaign against housing speculation may preclude that. But if PSL lending keeps ramping up, it may be a sign that policymakers are getting more serious about putting a floor under the real-estate sector.

For now, at least, China’s property market is still in serious trouble. Weighted average property prices fell 2.4% in December on a seasonally adjusted, annualized basis, according to Goldman Sachs—twice as fast as in November. After a modest improvement in the fall, new residential floor-space sales and property investment both fell faster again in December from a year earlier.

Last but not least, the labor market still looks shaky. China’s construction purchasing managers index showed employment prospects improving last month, but the picture worsened in manufacturing and services, according to the official survey.

Outside of property, investment looks to be stabilizing. That is good news. But until the property market, services sector employment and income growth find a firmer footing, China’s growth will remain plodding by the standards of yesteryear.

Source: The Wall Street Journal January 17, 2024 | By Nathaniel Taplin