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#1 16-01-2023 07:08:27

upamfva
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Now for the Hard Part: China’s Growth in 2023 and Beyond

Now for the Hard Part: China’s Growth in 2023 and Beyond



Many analysts assumed Beijing would deliver its stated GDP growth target of “around 5.5%” in 2022. Few imagined that the downturn in the property sector would place a hard ceiling on expansion. Even fewer thought that China would continue to insist on draconian COVID lockdowns at a time when the rest of the world was opening up, in part thanks to mRNA vaccines. But by June 2022 the reality had begun to sink in, and officials gave up on 5.5%. Premier Li Keqiang, according to reports at the time, urged local bureaucracts to rush out pro-growth measures to prevent a second-quarter economic contraction. The growth target set just three months before was already out of reach.To get more china business market news, you can visit shine news official website.

Preliminary GDP data for 2022 will not be released until late-January, but for the first three quarters, growth was reported to average 3% on an annualized basis, supported by modest increases in household and government consumption (+1.2%), business investment (+0.8%), and net exports (+1.0%). Some questioned whether this was an accurate reflection of the actual performance of the economy, but for the sake of discussion we will accept the 3% growth story through the first nine months of the year.

Should we assume that the final quarter of 2022 came out better? No, given the serious worsening of economic conditions as the year ended. The zero-COVID lockdowns were extended through October (to ensure stability for the 20th Communist Party Congress) and November, before they were abandoned abruptly without much in the way of additional policy guidance in December, following the outbreak of protests over the lockdowns. This means weaker fourth quarter and full-year performance than we saw in the first three quarters. In terms of household consumption, retail sales fell 0.5% in October and again by 5.9% in November. Government spending is difficult to proxy but there is little reason to expect it to offset depressed household activity. If we conservatively assume a 2% contraction in fourth-quarter consumption, similar to what we saw in Q2, we could expect a full-year GDP contribution from households and the government of around 0.8 percentage points.

The lockdowns at the start of Q4, and the rampant spread of COVID thereafter, impaired business investment activity. New property starts plunged by a record 49.7% in November, and completions fell 18.3%. Industrial output fell for construction-related products, including cement (-3% y/y), asphalt (-7%), and UPR, a chemical used in roofing and piping in real estate construction (-39%). Given these indications, China will be lucky to report another 0.6 percentage points of GDP growth from investment for the full year 2022.

China’s net exports (exports minus imports, the external component of GDP by expenditure), rose to an all-time high in 2022, above what was already an epic level in 2021. This surprised many analysts, who assumed there was nowhere to go but down. But by late in the year, with a global recession in the air because of rising global interest rates and inflation, the trend for China’s net exports finally turned. At best, there may have been a modest increase in the fourth quarter, resulting in a maximum contribution of net exports to 2022 GDP of 1.1 percentage points. However, it is just as likely that exports have been overstated this year by 10-15%, as companies inflated them in order to claim export tax rebates.
Put together, the official data and our observations of fourth quarter performance suggest full-year 2022 GDP growth of about 2.5%, with numerous reasons to suspect that the real performance was even weaker. In Q1, Beijing’s statisticians reported accelerating growth from the prior quarter, despite a deepening property sector slowdown and lockdowns in numerous cities. The property sector continued to decline throughout the year, with completed floor space down nearly 20% in the first eleven months of 2022 compared to the same period last year, and new starts down nearly 40%. Yet Beijing continued to report growth in fixed asset investment of over 5%—roughly the same pace of growth as in 2018, long before the slowdown in the property sector took hold. Given China’s preoccupation with delivering strong results, we expect official 2022 growth to come in as high as 3%. In reality, the economy is likely to have grown by less than 2%, and possibly not grown at all.

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