China’s Economic Struggles Persist as Deflation and Property Crisis Linger

China is still contending with major challenges from deflation pressures and the property crisis as the year kicks off, with investors underwhelmed so far by policies to keep economic momentum going.

Data released Wednesday presented a mixed bag for the world’s second-largest economy, which hit an official growth target for the year but has failed to shake off several of the problems most persistently weighing on domestic demand and confidence.

A slew of indicators for home prices and property-related spending disappointed, while deflation remains stubborn. A measure of broad price changes recorded its longest stretch of quarterly declines since the wake of the Asian Financial Crisis in 1999.

“China’s economic data continues to point at stable consumption and services, but with seemingly never-ending challenges in real estate,” said Gary Ng, senior economist at Natixis SA. “Although the macro picture looks somewhat resilient, it is increasingly a glass half-full or half-empty question for households, corporates and investors in 2024.”

The MSCI China gauge fell while the Hang Seng Index was having its worst day since October as global funds worried about a structural slowdown.

The yields on China’s 10-year government bonds have been trading near a two-decade low.

Chinese markets are also tracking a broader selloff in Asia, as expectations for a US rate cut in March get scaled back by recent pushback from Federal Reserve officials.

This week’s advance in Treasury yields has spurred declines in emerging markets everywhere.

Gross domestic product grew 5.2% last year, data released by the National Bureau of Statistics showed Wednesday, matching expectations.

The fact that rate was in line with Beijing’s official target of “around 5%” was no surprise, though, given Premier Li Qiang revealed the number a day earlier in Davos, Switzerland.

Persistent deflationary pressures and the prolonged property slump proved major challenges through 2023, eventually spurring authorities to roll out more stimulus in the form of rate cuts and fiscal support to help achieve that goal, which was deemed “conservative” when it was announced in March.