China’s economy expanded 5.2% in the fourth quarter compared to the same period last year, according to official data released on Wednesday, January 17. This figure slightly missed analysts’ projections but ensured Beijing met its annual growth target despite a rocky start to the year.
The second-largest economy in the world has defied most analysts’ predictions by failing to mount a robust and long-lasting recovery following the COVID-19 pandemic. Its problems include a protracted property crisis, low consumer and business confidence, growing local government debt, and slower global growth.
China’s Q4 GDP growth of 5.3% suggests a recovery tune with nuances of resilience and challenges amid expectations of a strong economic rebound. According to the most recent survey conducted by China Beige Book International, the post-COVID recovery may have peaked, underscoring the need for proactive government policies or worldwide surprises to spur further acceleration in the upcoming year.
With a 5.2% annual growth rate, the GDP for the entire year 2023 slightly exceeded projections thanks to the low-base effect of the COVID-19 lockdowns the year before. Still, analysts had correctly estimated this rate of growth. China’s officials continue to aim for growth of about 5% by 2024, indicating cautious optimism in the face of uncertainty.
Although the GDP increased by 1.0% from October to December, as anticipated, December’s economic data painted an inconsistent picture. Retail sales dropped to their lowest level since September, while factory output increased at the fastest rate since February 2022. The property sector’s persistent weaknesses and the economy’s sluggish growth in investment continued to be major obstacles.
Notably, signs of distress persisted in the property market, which was once a major driver of China’s economic growth. The NBS data for December showed that new home prices have been declining at the quickest rate since February 2015—a sixth consecutive month of declines. Sales of real estate by floor area decreased by 8.5% over the year, while new construction starts fell by 20.4%. Analysts emphasize the need for targeted measures, speculating that broad-based rate cuts might not be the answer to all of the problems facing the property sector.
When the central bank decided against lowering interest rates on Monday, the markets initially showed disappointment, voicing worries about the wider economic slowdown. UOB economist Woei Chen Ho stated, “Broad-based rate cuts are not the solution to the property issues.” The central bank’s move highlighted the difficulties in striking a balance between currency stability and economic stimulus, especially with the ongoing pressure on the yuan.
Concern was increased by the most recent unemployment statistics, which showed that the survey-based unemployment rate rose from 5.0% in November to 5.1% in December. This minor decline in the labour market begs questions about the state of China’s employment system as a whole, which is vital to maintaining the country’s economic recovery.
Notwithstanding these obstacles, there was cause for optimism due to the quickening pace of factory output growth, which indicated the manufacturing sector’s resilience. Still, a slight increase in exports and ongoing deflationary pressures might not be enough to boost sluggish factory activity. Bank lending data for December also showed signs of weakness, creating more challenges for the economy.
China’s demographic trends are a more serious source of concern for the country’s long-term growth prospects. In 2023, the population of the nation fell for a second year in a row, by 2.75 million, to 1.409 billion. Concerns concerning the effects on consumer markets, social structures, and labour force dynamics are raised by this decline’s quicker pace when compared to 2022.
Amidst these economic crossroads, China faces a complex mix of opportunities and challenges as 2024 gets underway. The difficult tasks of maintaining employment, resolving issues with the property sector, and navigating global economic uncertainty fall to policymakers. In the coming months, China’s economic course will probably be determined by the need for targeted policies as well as possible positive effects on the world economy.