In the midst of a climate of relatively low domestic inventory levels, the risks associated with an economic downturn appear to be constrainedHistorical trends signal an inverse relationship between real interest rates and inventory behavior, which has shown a weak lead over timeAs of the end of 2023, real interest rates have significantly decreased from a remarkable high of 9.9% in June 2023 to 7.1%, indicating a resurgence in inventory as it begins to stabilizeConcurrently, signs of upward momentum in the capacity cycle are becoming increasingly apparent, offering solid support to the economy, as demonstrated by a steady rise in capacity utilization rates over the past three quarters, from 74.3% to 75.9%.

The initiation of a "restocking" cycle in the United States is complementing a gradual improvement in external demand from China

Various sectors in the U.Shave begun this phase of stocking goods, with the inventory growth rate for retailers rising from 6.3% in June 2023 to 8.5% by January 2024. Particularly, the manufacturing sector displays a fragmented pattern of restocking, notably in industries such as transportation, chemicals, metals, and textilesThis phenomenon of restocking not only drives domestic inventory adjustments but also bolsters demand for China's exports, particularly in the furniture and relevant machinery sectors, catalyzing a beneficial ripple effect across the economy.

Further underpinning the economic foundations is the assurance of robust financial supportThe degree of economic recovery is closely intertwined with the extent of fiscal assistance providedFor 2024, budgetary spending under the broad definition is anticipated to surge by 7.9%, exceeding the nominal GDP growth rate of 7.4% implied by a 3% deficit ratio

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This escalating fiscal expenditure signals a more amplified governmental backing for economic stabilityFurthermore, quasi-fiscal instruments including policy loans for technological innovation and upgrades are now being rolled out, historically proving effective in bolstering targeted industries.

At the onset of the year, macroeconomic data has been surprisingly positive, with phenomena such as the "working-day effect" coming into playIn the months of January and February, both industrial production and investment demand have seen significant upswings, surpassing expectationsFor example, industrial value added—an indicator of the volume of industrial production over a specific time—and several efficiency factors have contributed to this growthDuring this period, the working days reached a peak of 40 days, the highest since 2010 and 2 days more than in 2023, contributing positively to economic performance and particularly magnifying year-on-year indicator comparisons.

However, the realization of micro-level data metrics related to actual physical work output has lagged, influenced by unforeseen extreme weather conditions and delays in the issuance of special bonds aimed at financial support

The post-holiday resumption of work coincided with periods of freezing rain that disrupted foot traffic and inflicted severe slowdowns, particularly impacting construction and related industriesFor instance, in January and February, the working rates for asphalt have plummeted to record lows, while grinding operations have declined by 7% year-on-yearAdditionally, as of this year, the pace for special bond issuance has been troublingly sluggish, achieving merely 16.3% of the annual quota in the first quarter, much lower than the usual 40% seen in previous years.

Despite not yet reaching a stage of stable recovery, the stance on "steady growth" policy initiatives remains unchanged, and counter-cyclical regulatory efforts will continue stronglyThe temporary spikes in data caused by the "working-day effect" will not sway policy decisionsDrawing on recent history, the second half of 2020 saw economic recovery alongside increases in substantial fiscal expenditure and social financing growth rates

Should pressures on the economy intensify, supplementary policies will likely be timely introduced, demonstrated in the third quarter of 2022 when new policy financing tools were enacted alongside the relaunch of PSL (Pledged Supplementary Lending).

In assessing Gross Domestic Product (GDP) via production methods, the rising proportion of the tertiary industry is notable, with simultaneous profound shifts in the structure of the secondary industry reflecting the robust growth of high-end manufacturing as part of the "new momentum." Urbanization has naturally driven increasing demand for services, leading to an interesting turn of events in 2012 when the GDP share of the tertiary sector surpassed that of the secondary sector and eventually rose to 54.6% by 2023. The building and mining sectors denote a consistently stable share within the secondary industry, while manufacturing's proportion has slightly decreased, indicating a stronger focus on structural optimization with the high-tech manufacturing sector achieving an increase to 15.7% of industrial value added in 2023.

In terms of achieving economic growth targets, the path ahead appears manageable, with potential GDP growth year-on-year forecasted at about 5.2%. The secondary sector anticipates a reinforced driving force from midstream equipment manufacturing, which boasted an increase in value added of 8% in 2023 and a revenue share that overtook the processing and smelting sectors at 42%. This upward trajectory in equipment manufacturing is likely to continue, contributing to an approximate 4.5% year-on-year growth in secondary sector GDP

Furthermore, as the restocking initiatives gain traction, their contribution to year-on-year GDP growth may range from 0.1 to 0.4 percentage points.

The impetus from the tertiary industry is poised to strengthen even furtherThe market often overestimates the burdens stemming from real estate but neglects the significant implications of emerging service sectors, such as information technology and software, which are witnessing increased investments and growing contributionsIn 2023, added value from the information technology and software sectors has risen by 12%, elevating their share of the tertiary industry's overall composition to 8%, while real estate’s share has waned to 10.7%. Looking ahead into 2024, even amidst subdued sales in the property market, the direct dampening effect on tertiary GDP is estimated at around 0.1 percentage points