China’s economy grew 2.9 percent in the fourth quarter

Beijing According to official figures, China’s economy grew by three percent last year despite recurring lockdowns and chaotic opening. The state statistics agency published this preliminary estimate on Tuesday. Growth, especially in the fourth quarter, is higher than expected. Some experts therefore doubt the data.

As expected, the target of around 5.5 percent set by the government was clearly missed. It is the second lowest since reform and opening-up policies began in the late 1970s. In the first year of the pandemic, 2020, China’s economy grew by 2.2 percent, and in 2021 it had recovered strongly with an increase of 8.4 percent.

For the current year, most experts expect the Chinese economy to regain strength. However, opinions differ on how strong the recovery will be and how fast it will be.

Statistics Bureau chief Kang Yi admitted that the basis for a rebound is “not yet stable”. He referred to the difficult situation on the labor market. The unemployment rate was 5.5 percent in December. Of the 16 to 24 year olds, 16.7 percent were unemployed.

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Allianz chief economist Ludovic Subran still expects “difficult winter months” before things start to pick up again in the second quarter. At the beginning of the year, China’s economy was still on “very shaky ground”. Not only the development in the country itself is decisive, but also the global demand. The real estate sector remains another source of uncertainty. According to estimates, the latter contributes directly and indirectly to up to a third of economic output.

Corona wave partially paralyzed the economy

Another important factor for economic development is the impact of the corona pandemic. On December 7th, China’s government surprisingly abolished numerous restrictions of the strict zero-Covid policy that had been in force for almost three years. As a result, the corona infections in the most populous country in the world rose rapidly.

Around 900 million Chinese are now said to have been infected with Corona, researchers at Peking University estimated in mid-January. This corresponds to around 64 percent of the population. According to official figures, more than 60,000 Chinese have died in hospitals from or with Corona since the easing in December. British data processor Airfinity estimates the total death toll at 350,000.

nurse in China

The latest corona wave in the country claimed numerous lives.

(Photo: AP)

The corona wave temporarily paralyzed China’s economy in December. The hardest hit were trade, the service industry and the export sector, whose sales shrank compared to the same period last year. Industrial production, on the other hand, increased slightly.

In previous months, the rapidly spreading Omicron variant had led to recurring lockdowns that increasingly strangled the world’s second largest economy. The crisis on the real estate market came to a head. Added to this were the global effects of the Ukraine war.

Experts from the analysis company China Beige Book therefore assume that China’s economy shrank in the fourth quarter, instead of the officially announced growth of 2.9 percent.

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The head of the International Monetary Fund (IMF), Kristalina Georgieva, recently named China’s departure from the zero-Covid policy as probably the most important factor for global growth in 2023. From around the middle of the year, China could make a positive contribution to the global economy, she believes.

The IMF expects the world’s second largest economy to grow by 4.4 percent in 2023. Experts from the French investment bank Natixis stressed that the timing and speed of the upswing depended largely on political support measures and investments as well as the development of consumer confidence.

China’s economic planners are hoping for a recovery in consumption

China observers are eagerly awaiting whether the Chinese government will stick to its mantra of a more sustainable, consumer-driven upswing in view of the crisis, or whether it will attempt to use credit-financed investments to push growth in the short term. At the annual Central Economic Conference in December, the state leadership emphasized that the priority for 2023 is to expand domestic consumption.

The decisive factor here is whether consumers regain confidence in stable economic development. China’s households have kept their money together over the past year. They put back the equivalent of around 2.4 trillion euros more than in the previous year, according to an analysis by the Chinese central bank.

shops in Beijing

Consumers have held back in recent years.

(Photo: Reuters)

The excess savings will “likely” be spent in the coming months, according to Wang Tao, chief China economist at Swiss bank UBS. However, further corona waves could affect consumer sentiment.

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Iris Pang, China chief economist at the Dutch bank ING, also expects a “sudden increase” in retail sales in the first quarter. However, according to a survey by the Chinese central bank at the end of December, Chinese consumers are currently still cautious. Only 22.8 percent of those surveyed stated that they would consume more in the future. More than 60 percent want to save more.

Experts assume that a sustainable recovery in consumption will largely depend on the development of the real estate sector. Due to a lack of alternative investment opportunities, it is estimated that around three quarters of private household assets are in real estate.

Crisis on the real estate market continues

Already in November, the authorities passed 16 measures to support the real estate sector. For example, property developers are to be supported with loans so that they can complete real estate projects. In 2020, the government restricted lending to highly indebted real estate companies to prevent a speculative bubble.

As a result, many real estate developers got into financial difficulties and construction projects came to a halt. China’s second largest real estate company, Evergrande, went bankrupt. It is questionable whether the measures that have now been taken are sufficient to stabilize the market and, above all, to stimulate demand for real estate again. In December, new home prices continued to fall in the 70 largest cities.

Construction site in Shanghai

The real estate sector is an important part of the Chinese economy.

(Photo: dpa)

The prospects for the important export sector have also clouded over. The chaos that followed the unexpected end of the zero-Covid policy has “further exacerbated problems there,” warns UBS economist Wang. In the coming year, China’s exports could even shrink by four percent, she predicts.

Lu Ting, China chief economist at the Japanese investment bank Nomura, also expects that, among other things, the slowdown in the global economy will “probably weigh on the export sector well into 2023”. Exports of goods account for around 14 percent of China’s gross domestic product in terms of value added.

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Given the poor prospects in the export sector, an expected only moderate recovery in consumption and the ailing real estate sector, Lu expects the government to continue to support the economy. So far, however, the stimulus measures have been relatively cautious.

Bright spots for China’s tech companies

There is growing hope among China’s technology groups that the regulators’ strict grip will be relaxed somewhat. High-ranking representatives of the Communist Party recently visited the headquarters of the online wholesaler Alibaba. The taxi service provider Didi, which fell out of favor in 2021, has been able to register new customers since Monday, for the first time in almost a year and a half.

But even if China’s government succeeds in stabilizing the Chinese economy in 2023 after the Corona slump, the structural problems will remain unresolved. These include the heavy dependence on (government) investments and the rapidly aging society. Experts have long warned that China will grow old before it gets rich.

China’s population is shrinking for the first time since the famine triggered by Mao Zedong’s failed Great Leap Forward industrialization campaign. At the end of December, 1,412 people lived in China, the statistics agency also announced on Tuesday. There are around 850,000 fewer people than in the previous year.

The major challenge here is to achieve steadily increasing economic growth with a shrinking working population. Growing prosperity is the most important legitimation for the Communist Party, which has been in power since 1949.

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