China’s economy likely grew at its weakest annual pace in more than three decades in 2023, data are expected to show on Wednesday, as it was hit by a devastating property crisis, subdued consumption and global uncertainties.
A panel of ten experts interviewed by AFP predicted that China’s gross domestic product (GDP) would grow by 5.2%, which would represent the slowest rate since 1990, barring the Covid-19 pandemic.
The reading would be an improvement on the 3 percent seen in 2022, though that year saw business activity hammered by strict health restrictions designed to contain the virus.
After the measures were lifted, Beijing set a growth target of “around five percent” for 2023.
The return to normal life initially sparked a recovery early last year, but the long-awaited recovery soon petered out as a lack of confidence among households and businesses hit consumption.
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An intractable real estate crisis, youth unemployment and a global slowdown are also affecting the gears of China’s growth engine.
“The main challenge to China’s economic recovery still emanates from the property sector,” said Jing Liu, chief economist for Greater China at HSBC.
The real estate sector has long accounted for about a quarter of China’s economy.
It has enjoyed two decades of dazzling growth, but financial woes at majors such as Evergrande and Country Garden are now fueling buyer distrust, amid unfinished housing developments and falling prices.
The property market has long been seen by many Chinese as a safe haven to save on parking, but the price slump has hit their wallets hard.
Abnormal recovery
“Property investment, home prices and new home sales are set to decline throughout 2024 before returning as a modest driver of growth in 2025,” said Harry Murphy Cruz, economist at Moody’s.
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This crisis, along with “subdued labor market conditions,” are reducing consumer confidence, said Helen Qiao, head of Asia Economic Research at Bank of America.
A record more than one in five people aged 16 to 24 in China were unemployed in May, according to officials, whose monthly publication has since been suspended.
The uneven recovery largely benefited services, as customers returned to restaurants, transport and tourist sites.
But the level of spending is often lower than in 2019, before the pandemic took hold.
A rare bright spark is the state-subsidized auto sector, where a wave of electrification has supported domestic manufacturers such as BYD, which dethroned Elon Musk’s Tesla as the world’s best-selling EV maker in the fourth quarter.
However, other sectors are struggling, notably manufacturing, which has been weakened by weak demand at home and abroad.
Chinese exports — historically a key driver of growth — fell last year for the first time since 2016, according to data released by the country’s customs service on Friday.
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The decline is partly explained by geopolitical tensions with the United States and efforts by some Western countries to reduce dependence on Beijing or diversify their supply chains.
“Most (Western) companies are reducing or maintaining current investment levels” in China but diversifying elsewhere, said Teeuwe Mevissen, an analyst at Rabobank.
“China has seen significant capital outflows” as a result, but also due to an increase in its own investment abroad, he told AFP.
All of these challenges “will continue to play an important role in 2024,” Mevisen warned.
This year, China’s growth is expected to slow to 4.5%, according to World Bank forecasts.
The average forecast from AFP’s pool of experts was 4.7 percent. Beijing is expected to announce the new growth target in March.
Source: AFP