Last week, the Chinese National Bureau of Statistics reported that China’s real GDP expanded by 5.2 percent year-on-year last year, which was in line with the market consensus and slightly better than the official target of about 5 percent. The showing is not too bad if compared with the IMF’s forecast of 3 percent growth for the global economy last year. However, the biggest challenge Beijing faces is not about figures, but the generally low degree of confidence inside and outside the country.
China’s economic performance in the past year had been somewhat surprising to the rest of the world. Initially, there was speculation that a reopening boom would follow after China’s abrupt lifting of its COVID-19 restrictions in late 2022 and that it would quickly lift the nation’s economy. China’s economic performance in the first quarter of last year did meet market expectations, with real GDP rising 4.5 percent from a year earlier, and some big US investment banks such as Goldman Sachs Group Inc even predicted a 15 percent rally in Chinese equities in the year.
However, China’s momentum slowed in the second quarter, with GDP expansion shy of market expectations at 6.3 percent. Since then, news of sluggish consumption, declining exports, a struggling property market and rising local government debts have continued leading other countries to adopt a conservative attitude toward China’s economic outlook, with pessimistic predictions becoming mainstream. For instance, some warned that China’s economic scale would never surpass that of the US, while others even suggested India would surpass China.
Furthermore, the news for China stocks is less pleasant, as it turned out that its benchmark CSI 300 Index last year declined 11.38 percent, dropping for a third consecutive year, while the Shanghai Composite Index shed 3.7 percent and the Shenzhen Composite Index fell 13.54 percent. In Hong Kong, the Hang Seng Index also lost 13.8 percent in the year, making it one of the worst-performing markets in the world, while many emerging markets remained resilient and did just fine.
There has been speculation that China might set its growth target for this year similar to last year’s, as policymakers aim to boost investors’ confidence as the target is made public during the Chinese National People’s Congress in early March.
However, the biggest problem and a hidden concern for China’s economy is not about the give or take of one or two percentage points in the GDP growth target, but a question of overall confidence in the country.
Last week, a slew of economic data for last month accompanying the GDP figures showed a mixed view of the economy and suggested a fragile recovery ahead, as weak domestic consumption, low employment and further weakening of the property market continue to be key risks to China’s economy this year, despite an upturn in the manufacturing sector. Longer-term, China is confronted with another urgent issue as official data showed the country’s population declined last year for the second year in a row, decreasing by 2.08 million people — more than twice the drop in 2022 — while its working-age population is projected to fall to just 210 million people by 2100 — a mere one-fifth of its peak in 2014.
As such, fiscal and monetary policy support remain crucial to China’s economic woes, but unfortunately the measures Beijing has offered so far have been unable to turn around the country’s property sector, which last year saw land sales halved, falling property investment and tepid sales growth. The weak fundamentals are likely to stay unimproved this year. Coupled with the external environment growing increasingly uncertain and the withdrawal of foreign capital from China, the country’s economy this year faces even more difficulties and risks a downward trend for another year unless Beijing greatly and effectively expands its policy support.
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