Premier Promises Measures to Spur Growth
Chinese Premier Li Keqiang addressed the World Economic Forum in Davos, Switzerland this week seeking to reassure investors about China’s economic prospects despite growth falling to its second lowest rate in over 30 years.
Li announced that China’s economy grew by 5.2% last year, exceeding the government’s target of around 5% but marking a continued slowdown as the country battles a real estate crisis, COVID disruptions and weak global demand.
While reiterating support for the private sector and outlining plans to boost infrastructure investment, Li acknowledged “unpredictability” in China’s development. Analysts remain concerned about risks flowing from debt problems in the real estate industry.
Supporting Policies to Stabilize Growth
The government has already taken a raft of measures to stabilize the economy, rolling out fiscal stimulus and easing financing curbs to boost infrastructure projects. The central bank also cut interest rates last week to lower funding costs.
Further policy support is expected this year to halt the slowdown. Li stated that policies would focus on the “three stabilities” – stabilizing employment, finance and foreign trade. Efforts will also target technology advancement and green development.
Key growth targets and policy plans for 2024 will be unveiled at China’s parliamentary meetings in March. GDP is likely to be set around 5%, but some economists predict more downside risks.
| China GDP Annual Growth | ||
|---|---|---|
| Year | GDP Growth (%) | Target (%) |
| 2022 | 3.0 | around 5.5
| 2023 | 5.2 | around 5
(Source: National Bureau of Statistics)
While China faces rising challenges, policymakers emphasized that the economy remained resilient and development trends largely positive.
“The fundamentals sustaining long-term growth have not changed,” Li said.
Property Woes and Unemployment Concerns
The real estate sector has been particularly troubled with developers struggling with mounting debts. Property investment, sales and new starts all contracted sharply last year.
UBS analysts estimate that real estate and related sectors constitute up to 25% of GDP. Problems like unfinished housing projects have sparked anger and uncertainty among homebuyers.
Youth joblessness has also climbed back up after dropping during the pandemic, reflecting weak hiring. The unemployment rate for those aged 16 to 24 reached an record 19.9% in July before retreating.
Overall the urban jobless rate ended 2023 higher at 5.5% versus 5.1% in 2022. Still, officials contend the job market remains stable.
Global Uncertainty and Geopolitical Tensions
Export growth slowed considerably from over 18% in the first half of 2022 to 0.1% year-on-year in December, pointing to waning overseas demand. Import growth also softened to 0.3% by December.
Total trade surged 7.7% for 2023, though well below 2021’s banner increase of nearly 30%. Analysts see little improvement in trade prospects this year with most major economies headed for recession.
Geopolitical rifts have also intensified over areas like Taiwan. This led Western countries to enhance restrictions on exporting technology to China.
Seeking foreign capital and closer global integration, Li invited multinationals to continue investing in China and share in “vast opportunities”.
Demographic Headwinds and Pressure on Services
China’s population declined for a second straight year, losing around 850,000 people in 2022 based on official figures. An increasingly top-heavy age structure will curb the labor force and productivity.
The services sector outperformed industry again, growing 7.1% in the fourth quarter versus 2.8% for manufacturing. Services accounted for over 60% of growth last year.
But retail sales notably lagged at just 0.7% in December while growth for the full year dropped to 0.7% from 12.5% in 2021 – indicating still weak consumer sentiment.
Outlook: Recovery Expected but Risks Remain
Economists see Chinese growth bottoming out and picking back up later this year as support policies gain traction. But the pace of recovery remains uncertain.
“The road ahead will not be smooth,” Li admitted.
While downside dangers persist, China’s vast domestic market and resources suggest the slowdown will likely moderate.
“The fundamentals haven’t changed in that China’s got the world’s best supply chain, extraordinary technical capabilities…We’re doubling down on China,” said Blackstone President Jon Gray.
Nonetheless, as long as property and COVID troubles continue, China faces difficulty revitalizing growth momentum. Successfully navigating these limits will largely shape the country’s economic trajectory going forward.
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