Why in News? China recently reported a stronger-than-projected economic growth of 5.3% in January-March 2024 quarter despite facing challenges.

Drivers of China’s Economic Growth- As per China’s National Bureau of Statistics, growth was propelled by an expansion in services sector, as well as upbeat external demand boosting export growth, especially in industrial sector. Indicating government support, China’s fixed-asset investment grew by 4.5% in first three months of 2024 despite weakness in February when Chinese Lunar New Year holidays disrupted industrial production.

Challenges Faced-Trade friction with the US (higher tariffs on Chinese exports); Slowdown in some economies of Western Europe, especially Germany; slowdown in consumption as investable surplus stuck in real estate is impacting citizens spending power; Troubled property market with declining investment; High debt levels; Population ageing, Slower productivity growth; Weaker global demand and increased geo-economic tensions; Climate change and extreme weather events.

Concerns Raised-The World Bank forecasted China’s GDP growth at 5.2% in 2023 slowing to 4.5% in 2024. Economists are attributing the latest growth trends to an ongoing reallocation of investment from troubled real estate to manufacturing and questioning if government has the resolve and resources to continue driving up this growth momentum in coming quarters.

Impact of China’s Economic Growth-Any uptick in China’s growth figures would have its impact on global growth. An above 5% growth for an $18.6 trillion economy is remarkable given the context that its growth averaged 10% a year in 3 decades after 1978 economic reforms. If the property sector downturn were to extend beyond initial expectations, it would impact consumer sentiment and spending and could have a cascading impact, putting pressure on suppliers, creditors, and local government revenues, and lead to a slide in public investment (which supported growth during latest quarter).