Thoughts from the road: China

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I recently traveled to China to visit with CEOs, policymakers, and KKR deal teams. I also spent lots of time with my teammates Changchun Hua, who serves as Chief Economist for Greater China, and Allen Liu. See below for the details, but our conclusions from this most recent visit are as follows:

1. China’s economy has bottomed.

2. Maybe more importantly, trade within Asia, which we view as a mega theme, continues to gain momentum. 

3. The rebalancing of the Chinese economy towards automation and the environment is definitely good for GDP growth, but we are not sure that it is as good for global allocators. 

4. The most important takeaway from my trip, though, is that no sustainable, structural acceleration in China’s GDP growth is likely until two things occur. First, a fundamentally overbuilt real estate industry needs to be addressed – and quickly. Second, confidence must be restored to drive savings back down to inspire both consumers and corporations to spend on higher quality upgrades flagged by the Chinese government as opportunities in the consumer and industrial sectors. 

5. There are about to be some important changes in the Chinese financial services system as rates fall further, we believe. 

6. There was a lot of discussion about the trajectory of GDP growth, but more and more the discussion is now centered on the capital markets, including both flows and savings. 

EXHIBIT 1: A Misunderstood Economy: Digital and Green Transformation Should Offset Ongoing Drags From Real Estate In 2024

China GDP Breakdown: 2024

This chart shows China's GDP breakdown in 2024.
Note: 'Green transition' is based on green finance and transition investment studies from the Beijing Institute of Finance and Sustainability as well as reported by BNEF. 'Digital economy' added value is as reported by CAICT, including added value of the information industry and added value that the information industry brings to other industries. The drag of real estate is estimated by the KKR GMAA team with an IO table and includes the real estate industry itself and the industry's impact on upstream and downstream. Data as at March 25, 2024. Source: Beijing Institute of Finance and Sustainability. China National Bureau of Statistics, BNEF, CAICT, KKR Global Macro & Asset Allocation analysis.