China’s economic growth rate slipped to one of its lowest levels in decades in 2023. Although China has lifted all epidemic restrictions, the housing slump and weak consumer confidence have severely damaged the world’s second-largest economy.
Excluding the three years when China was closed to the outside world during the COVID-19 epidemic, the annual growth rate of China’s economy in 2023 will be the weakest since 1990. In 1989, student unrest in China began causing political turmoil. The student movement was suppressed near Tiananmen Square in Beijing in June of that year.
China’s economy is expected to grow by 3% in 2022, but only grew by 2.2% in 2020, the first year of the COVID-19 outbreak. Higher economic growth in 2023 is partly due to the low comparative base in 2022, when strict epidemic lockdown measures were implemented across China, which hit economic growth.
China’s economy fluctuated widely last year, and external expectations kept changing, but ultimately the growth rate of 5.2% was higher than the government’s official target of around 5%.
It may be more difficult to maintain a similar pace of growth this year, given that the Chinese government has been reluctant to launch a large-scale stimulus package. Several global investment banks had previously predicted that China’s economic growth rate this year would range from 4% to 4.9%. China is expected to announce a formal economic growth target at the National People’s Congress in March.
In the short term, China’s economy has few obvious growth drivers. With the global economy expected to slow this year, demand for Chinese exports is softening. At the same time, Chinese families have been hit hard by years of epidemic prevention and control, and the government has not provided direct financial support. As the job market turns into a downturn, residents’ consumption sentiment been careful. Private companies have postponed new investments, and foreign investors have withdrawn money.
China’s top leaders are determined to foster new growth engines in areas such as electric vehicles and renewable energy. While they have produced results, they may not be enough in the short term to make up for the overall employment and growth gap caused by the the rapid decline of a once thriving real estate industry.
In the long term, China faces a series of alarming adverse factors, including a rapidly aging population, high debt levels and a deteriorating external political environment. The relationship between Western countries, led by the United States, and China declines sharply.
Wednesday’s data also highlighted the seriousness of China’s demographic situation. According to official statisticians, China’s population fell by 2.08 million last year to 1.410 billion. In 2022, China will experience negative population growth for the first time in decades.
Economists worry that China could be caught in a vicious cycle of falling prices and weak demand that reinforce each other, like Japan in the 1990s. Chinese policymakers’ reluctance to adopt stronger stimulus measures has baffled many economists, but others point to Chinese leader Xi Jinping’s ideological reluctance to use government funding to support the economy.
Although China has introduced some small-scale measures, such as slightly lowering key interest rates, lowering the cost of home loans, and encouraging banks to lend to troubled real estate companies, overall these measures have had little effect in reversing the downward pressure. economy. The Chinese government said last fall that it would issue 1 trillion yuan in government bonds. This is the biggest stimulus measure by the Chinese government to date, but economists believe it will not be enough to reverse the economic downturn.
“Maybe they don’t yet understand how big the risk is if deflationary pressures materialize,” said Alicia García-Herrero, chief Asia economist at Natixis.
Chinese stocks fell after the data was released. The CSI 300 index fell 1.4% and could hit its lowest close in nearly five years. Hong Kong’s Hang Seng Index, which includes shares of many Chinese companies, fell about 3.7%.
China’s stock market is in the midst of a multi-year slump, with foreign portfolio managers fleeing the country and domestic retail investors turning to safer assets. The sluggish economy has been worrying markets.
At the start of last year, China’s economy was once surrounded by optimism, with the cancellation of three years of suffocating epidemic policies, which prompted China’s consumption recovery.
But the post-reopening optimism cooled quickly after the first quarter as global demand for Chinese exports began to weaken. Throughout the epidemic, exports have been the mainstay of China’s economy. At the same time, youth unemployment remains high and wage growth is weak, damaging the confidence of ordinary families who are already vulnerable.
Last fall, China’s manufacturing activity weakened again and consumer prices fell into deflationary territory.
At the same time, China’s years-long downward trend in house prices has not slowed at all. Developers are heavily in debt and their incomes have fallen further Households have seen their wealth shrink and their security financial decreases.
Looking ahead, economists are calling on China’s leadership to take strong measures to stabilize house prices and manage the risk of spreading defaults by developers.
Larry Hu, chief China economist at Macquarie Group, said 2024 should focus on whether and when the central government will step in and take primary responsibility for preventing the spread of the situation.
Whether the Chinese government can restore consumer confidence will be another key indicator to watch this year.
In the heart of the Chinese city of Wuhan, Bella Liu, a 32-year-old worker in a telecommunications company, recalled the sudden drop in profits and frequent layoffs in her industry in 2023. After losing almost 20% on her investment in public funds, she has now converted more money in time deposits.
“Now that the economy is slowing down, it would be nice to have a job,” he said.
China’s full-year economic data released on Wednesday showed that total retail sales of consumer goods increased 7.4% year-on-year in December last year, and the annual growth rate was 7.2%. For the full year 2022, it will decrease by 0.2%.
These new data suggest that China’s economy, which was heavily dependent on exports during the COVID-19 pandemic, is now relying more on domestic demand. Consumption is an important contributor to overall economic growth in 2023. However, economists at Nomura believe it is still unclear how much consumption will drive China’s economy this year, One of the reasons is that the backlog of demand during the epidemic basically released.
Investment data for 2023 is also lacking. Fixed asset investment growth slowed across the country last year, increasing by 3.0% over the previous year, and will increase by 5.1% for the whole of 2022. Private fixed asset investment also remained weak, down 0.4% year-on-year, as policy uncertainty made entrepreneurs weary. Private fixed asset investment will grow by 0.9% in 2022.
In 2023, China introduced a series of control measures for technology industries such as gaming, and also issued warnings against espionage activities by foreign police forces, and some employees of foreign companies were detained.
Real estate industry data also gave people more reason to be cautious. By the end of 2023, new home prices in 70 large and medium-sized cities in China have accelerated their decline.
According to The Wall Street Journal’s calculations based on data released by the National Bureau of Statistics, the sales price of new commercial housing in China fell 0.45% month-on-month and 0.89% year-on-year in December last year. . All are faster than in November.
Last year, investment in real estate development fell 9.6%, the area of new housing construction fell 20.4%, and residential sales fell 6.0%.
The surveyed urban unemployment rate rose to 5.1% in December from 5% in November. Economists have expressed doubts about the accuracy of official unemployment statistics, mainly because they ignore nearly 300 million migrant workers.
China surprisingly released a revised youth unemployment rate, the first time since the data was suddenly suspended in July last year, when the unemployment rate hit new highs in a row, reaching a maximum of 21.3%.
China’s National Bureau of Statistics said on Wednesday it would release new monthly urban youth unemployment rate data, targeting the workforce aged 16 to 24 and excluding school students. The unemployment rate was 14.9% in December.
The Bureau of Statistics said the new unemployment rate only counts graduates looking for work and may more fully reflect the overall picture of youth employment and unemployment.
But China’s economy has its bright spots, not least its dominance in the global supply chain for renewable energy products such as solar panels and electric vehicles. Data on Wednesday showed China’s industrial added value grew 4.6% in 2023, up from 3.6% the previous year.
(update completed)
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