The global economy has been shaken by the outbreak of COVID-19, leaving many countries struggling to navigate the consequences of the virus’s spread. China, one of the world’s largest economies, is no exception. As the country works to recover from the pandemic’s impact, financial experts are urging investors and business leaders to be patient and adjust their expectations for China’s economic future accordingly. In this blog post, we will discuss the recent economic trends in China and explore what investors and business leaders need to know to navigate this uncertain landscape.
1. China’s economy shows signs of recovery
China’s economy has been showing signs of recovery, with industrial production rising by 5.6% YoY in April, according to economists surveyed by Reuters. Despite this, the figures fell short of expectations, with expectations of a 10.9% jump in production. Retail sales also rose by 18.4%, lower than the forecasted surge of 21%. While experts have acknowledged short-term challenges, they remain positive about the country’s long-term growth trend. Chinese officials and scholars predicted a sustained rebound with domestic demand expansion at the forefront of this growth. Experts have urged the authorities to come up with reform policies that will elevate market confidence and cultivate new drivers for growth, including self-reliance and strengthening science and technology.
2. Officials and scholars offer a positive outlook
According to officials and scholars in China, the country’s economic outlook remains positive. Despite short-term challenges, they believe that the expansion of domestic demand and the implementation of reform policies can elevate market confidence. Furthermore, the long-term growth trend remains unchanged, and economic transformation is necessary for sustained growth. While international institutions have revised their growth projections for China, the recent personnel changes and power consolidation, as well as the country’s 20th Party Congress, suggest a more pessimistic outlook. Nonetheless, experts urge patience and highlight the need to lower economic expectations for China.
3. Short-term challenges persist
Short-term challenges persist for China’s economy despite the rebound in the first quarter of the year. Debt risks and slow global growth remain major headwinds. The contraction in the real estate industry is still a significant challenge, while uncertainties around the virus’s evolution persist. Policymakers pledge to step up support for the economy, but they face limited room to maneuver. The investment-fueled growth of the past now depends on consumption, which faces challenges amid weak global growth. The uncertainties surrounding the international environment are still complex and ever-changing, with insufficient domestic demand constraints posing obstacles to sustainable economic recovery. Therefore, patience and comprehensive macroeconomic policies are necessary to address these short-term challenges and sustain the recovery.
4. Domestic demand expansion crucial for a sustained rebound
Experts emphasize that domestic demand expansion is a crucial element for China’s sustained economic rebound. They urged authorities to implement a series of reform policies to boost market confidence, expand social investment, and cultivate new growth drivers. With the economy’s ups and downs brought by the COVID-19 outbreak over the past three years, patience and strengthened confidence are necessary for a sustainable economic recovery. Most importantly, policymakers should focus on transforming China’s growth model and optimizing its economic structure. Through this, the nation can start a new round of economic growth cycle. Inadequate domestic consumption poses a significant risk to the country’s economic outlook, and, therefore, boosting it is necessary for steady economic growth.
5. Reform policies needed to elevate market confidence
Experts believe that China needs to implement more reform policies to elevate market confidence and promote sustainable economic growth. They suggest that the authorities should focus on expanding domestic demand by cultivating new drivers for growth, especially in science and technology. To achieve this, the government needs to consolidate its self-reliance and strength in these sectors. Economic transformation to optimize the economic structure is also necessary. It is important to note that the long-term growth trend of the Chinese economy remains unchanged, but there are some short-term challenges that need to be addressed through policy changes. These measures will help elevate market confidence and expand effective social investment, which is crucial for a sustainable economic rebound.
6. Long-term growth trend remains unchanged
Chinese officials and scholars have expressed confidence in the long-term growth trend of the country’s economy. Despite short-term challenges, the economy is expected to follow an upward trajectory in the years to come. Experts have stressed the importance of expanding domestic demand, adopting reform policies, and cultivating new drivers for growth, particularly in the science and technology sector. Wang Yiming, deputy head of the China Center for International Economic Exchanges, predicted that China’s nominal resident spending will reach 10 to 11 percent in 2023, which will help to boost consumption recovery. Showing confidence in the country’s development potential, international organizations such as the IMF and the World Bank have revised their 2023 growth projections for China lately.
7. Economic transformation necessary
Experts highlight that economic transformation should be a priority for China to secure its recovery and promote balanced, green, and inclusive growth. While China’s economy is set to rebound this year, it must address significant challenges such as the contraction in real estate and a shrinking population, among others. Undertaking comprehensive macroeconomic policies, including keeping fiscal policy neutral this year, additional monetary policy accommodation, and reforms in state-owned enterprises and unemployment and health insurance benefits, can significantly boost China’s growth in the coming years. China’s income level can increase by around 2.5 percent in five years with ambitious yet feasible reforms. The success of domestic reforms can also positively impact the growth of other countries.
8. International institutions revise growth projections
International institutions such as the United Nations and the International Monetary Fund have revised their growth projections for China. While the UN updated its growth forecast for China from 4.8% to 5.3% for 2023, the IMF expects China’s economy to grow at 5.7%, which is in line with some Chinese officials’ projections. However, despite the upward revisions, the growth rates remain low compared to those observed in the past two decades, worrying economic analysts. Although China’s economy has shown resilience amid the ongoing pandemic, global economic recovery remains fragile due to stubbornly high inflation, unresolved geopolitical tensions, and the impact of climate change, according to the UN’s mid-2023 report on economic expectations.
9. China’s 20th Party Congress signals pessimistic outlook
The 20th Party Congress of China, held in October 2022, signals a pessimistic outlook for the country’s economic future. Despite President Xi Jinping’s confidence that China’s power and prospects are on the rise, the party report warns of looming threats and challenges that the nation is facing, such as a sluggish global economy and regional conflicts. Furthermore, the report suggests that external attempts to suppress and contain China may escalate at any time. The bleak assessments of China’s external environment reflect Beijing’s concerns over growing tensions and pushback from Washington and many of its democratic allies. In response, experts are urging patience as economic expectations must go lower for China.
10. Personnel changes and power consolidation expected
The Twentieth Party Congress of China has long been anticipated for its potential power consolidation and personnel changes. It is expected that Congress will confirm Xi Jinping for a third term as party boss and that replacements for top foreign policy posts will be made. The composition of the Politburo Standing Committee, which serves as an indicator of the extent of Xi’s power consolidation, will also be key in determining how China is run for the next five years. No designated successor has emerged among the top personnel appointments, suggesting that Xi will have unchecked power to steer the country according to his vision in the coming years. Overall, experts urge patience as economic expectations must go lower for China.