China’s economy looks different than it did going into the pandemic
The central Chinese city of Taiyuan saw GDP growth of 10.9% year-on-year in the first three quarters of 2022. Pictured is a screen showing details of a new factory in the city.
vcg | Chinese Visual Group | fake images
BEIJING — The Chinese economy of 2023 will almost definitely not resemble the Chinese economy of 2019.
The real estate sector has collapsed under the repression of Beijing. Exports have diminished following a wave Chinese e-commerce giant jd.com this year replaced Huawei, hit by US restrictions, as it largest non-state company in China by income.
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In the last month, Beijing suddenly left many of the lockdown measures and Covid testing requirements that had affected economic growth in the past 18 months. Analysts warn of a bumpy road to full reopening, but now expect China’s economy to recover sooner than previously anticipated.
The underpinnings of that growth will almost certainly be different than they were three years ago, economists say.
China’s growth model is shifting from one highly reliant on real estate and infrastructure to one in which the so-called digital and green economy plays a bigger role, analysts at China’s top investment bank CICC said in their 2023 outlook. published last month. They cited the sentence 20th National Congress of the Chinese Communist Party emphasis on innovation.
The digital economy category includes communication equipment, information transmission, and software. The green economy refers to industries that need to invest to reduce their carbon emissions: electric power, steel, and chemicals, among others.
Over the next five years, cumulative investment in the digital economy is expected to grow more than sevenfold to 77.9 trillion yuan (11.13 trillion US dollars), according to CICC estimates.
That exceeds anticipated cumulative investment in real estate, traditional infrastructure or green economy, making digital the largest of the four categories, according to the report.
In 2021 and 2022, real estate was the largest category by investment, according to the report. But CICC analysts said that this year, investment in real estate fell by around 22% compared to last year, while in the digital and green sectors it grew by around 24% and 14%, respectively.
Beijing cracked down on developers’ high reliance on debt in 2020, contributing to defaults and a drop in home sales and investment. This year, the authorities have eased many of those financial restrictions.
Fading exports
While much of the world struggled to contain Covid-19 in 2020 and 2021, China’s rapid control of the virus has helped local factories meet growing global demand for health and electronics products.
Now, the demand is falling. China’s exports began to fall year-over-year in October, for the first time since May 2020, according to Wind Information.
Next year, a reduction in net exports is expected to reduce growth by 0.5 percentage point, Goldman Sachs chief China economist Hui Shan and a team said in a Dec. 16 note. Net exports have supported China’s GDP growth in recent years, contributing as much as 1.7 percentage points in 2021, analysts said.
But China’s exports to the Association of Southeast Asian Nations have rebounded, surpassing those of the US and the EU on a monthly basis in November. according to customs data.
“Exports to ASEAN countries can serve as a mild buffer to pressures in the EU and US markets,” Citi China economist Xiaowen Jin and a team said in a note on Wednesday. They expect ASEAN GDP growth to pick up in 2023, while the US and EU spend part of the next year in recession.
Jin noted that China’s auto exports, especially electric cars and related parts, have helped support overall exports this year.
Beijing has made a lot of effort to increase the development of the domestic electric car industry. many brands of child a BYD They have started selling passenger cars to Europe and other countries.
Consumer return?
“The rapid slowdown in exports also means that China needs to tap into domestic markets to grow for the foreseeable future,” said Hao Zhou, chief economist at Guotai Junan Securities in a Dec. 15 note. “With the relaxation of the Covid restrictions, consumption is likely to see a significant and sustainable recovery from next year.”
He expects retail sales to rise 6.8% next year and the national GDP to grow 4.8%.
Central government policy announcements this month have prioritized boosting domestic consumption. Retail sales have lagged overall growth since the pandemic, while a record percentage of people who have preferred to save.
Goldman Sachs analysts raised their 2023 GDP forecast from 4.5% to 5.2% as the economy reopened earlier than expected, with consumption as the main driver.
However, they cautioned that revenue and consumer confidence will take time to heal, meaning any release next year of “pent-up demand” may be capped outside some categories, such as international travel.
The rich spend more, the poor spend less
Spending among the poorest Chinese is not keeping pace how much rich Chinese spend, in contrast to more evenness across groups before the pandemic, according to a McKinsey survey this year.
This trend has manifested itself in the financial results of companies.
For the quarter ending September 30, the budget pinduoduo It said merchandise sales revenue fell 31% from a year earlier to 56.4 million yuan.
Ali BabaChina’s trade revenue, which includes apparel sales, fell 1% on-year to 135.43 billion yuan during that time.
Sales of more expensive items favored by the middle class, including electronics and home appliances, rose at JD.com, which said revenue from such products rose about 6% to 197.03 billion yuan in the three months ending September 30th.
In the longer term, McKinsey expects millions of urban households to become more prosperous, while the number in the lowest income category declines.