China's provincial economic data for the first quarter revealed a significant slowdown in regional GDP growth compared to the national average, with the central and western regions bearing the brunt of the economic downturn. According to a recent report from Haitong Securities, the primary driver of this decline was a sharp drop in investment, especially in the central and western provinces, which have long relied on an investment-led growth model. This model has now exposed these areas to greater vulnerability, as they face rising risks of further economic contraction.
The province’s GDP-weighted average growth rate in Q1 2024 stood at 8%, a decrease of 1.6 percentage points from 9.6% in the same period last year. This decline was far steeper than the national GDP growth rate, which fell by just 0.3%. The report predicts that if the historical trend continues—where provincial growth has typically outperformed the national rate by about 2%—then the province’s 8% growth could signal a potential drop in national GDP to around 6% for the year.
Several provinces saw particularly weak performance: Heilongjiang grew only 4.1%, while Hebei and Shanxi recorded 4.2% and 5.5% respectively—both their lowest rates since 2005. Jilin, Inner Mongolia, and Ningxia also experienced declines of around 7%. These figures highlight the deepening challenges in the central and western regions.
Haitong Securities attributes the slowdown to overcapacity, debt accumulation, and the bursting of the real estate bubble, all of which are constraining investments in manufacturing, infrastructure, and housing. This suggests that the investment-driven economies in these regions are now the most vulnerable to future downturns.
Nationally, investment fell by 2.6% in the first quarter, with even steeper declines in the west, particularly in Heilongjiang. Meanwhile, the CPC Central Committee’s Politburo meeting emphasized maintaining a steady and progressive approach, with continued support for fiscal and monetary policies that remain "sound and active," while remaining flexible to adapt to changing conditions.
Goldman Sachs Gaohua also predicts that the Chinese government may introduce more targeted easing measures, such as relaxing infrastructure access rules or real estate purchase restrictions, though these will likely be implemented discreetly. The focus is shifting toward supporting the real economy through micro-level stimulus, including urban renovation, energy efficiency, and service sector consumption.
The National Bureau of Statistics reported that China’s GDP grew by 7.4% year-on-year in Q1, marking the lowest level since the financial crisis. While the economy remains within a reasonable range, structural adjustments continue, and external uncertainties persist. The National Information Center expects GDP to grow by 7.4% in Q2, with industrial output rising by 9.1% and CPI increasing by 2.3%, while PPI falls by 1.1%.
However, the report warns of growing downward pressure, with real estate market risks, local government debt repayment peaks, and overcapacity leading to job losses and increased financial risks. It recommends short-term liquidity support and, if needed, a moderate cut in reserve requirements.
Premier Li Keqiang reiterated during the Boao Forum that China will avoid large-scale short-term stimulus, focusing instead on long-term sustainable development. This signals a shift toward quality over quantity in economic growth.
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