The lifting of ‘Zero-COVID Policy’ in December 2022 is expected to drive domestic demand and accelerate economic activities in China. Coupled with this, the stable political leadership transition and institutional reforms are positive developments that could help ensure policy continuity and stability.
Against this backdrop, GlobalData, a leading data and analytics company forecasts China’s economic growth to rebound to 5.4% in 2023 from 3% in 2022.
GlobalData’s latest report, “Macroeconomic Outlook Report: China,” reveals that China’s economy began 2023 on a strong note with a 4.5% growth in GDP in Q1 2023 on an annual basis, up from 2.9% in Q4 2022.
The rebound was driven mainly by consumption, with retail sales growing by 10.6% on an annual basis in March 2023, the highest level since June 2021, while private investment remained stagnant and youth unemployment increased. Industrial production also showed steady growth, up 3.9% in March 2023 compared to 2.4% in January and February 2023 combined.
Maheshwari, Economic Research Analyst at GlobalData, said: “The ending of China’s self-imposed isolation in December 2022 is likely to boost growth in many parts of the world, particularly for countries that export commodities to China.
Countries that export commodities such as copper, zinc, nickel, and iron ore could benefit from increased demand from China. In addition, the end of restrictions in China should help to resolve disruptions in the global supply chain, leading to increased efficiency and productivity.”
In terms of sectors, mining, manufacturing, and utilities activities contributed 30.6% to the gross value added (GVA) in 2022, followed by wholesale, retail, and hotels (11.0%) and transport, storage, and communication (7.9%). These sectors are forecast to grow by 8.3%, 8.7% and 9%, respectively, in 2023 as compared to 5.9%, 6.4%, and 6.7% growth recorded in 2022.
In August 2022, the Chinese government announced $1 trillion investment in infrastructure megaprojects, which is expected to boost the construction and allied activities. GlobalData projects the construction activities in China to grow at an average annual rate of 9.3% over 2023-25.
China’s unemployment rate dropped to a seven-month low of 5.3% in March 2023, down from the three-month high of 5.6% observed in February 2023. With a decrease in the unemployment rate and the reopening of the economy, real household consumption expenditure is expected to rise at a faster pace of 4.3% in 2023 from 1.3% in 2022.
Higher demand for goods and services is also expected to increase the prices. GlobalData projects the inflation rate in China to increase from 2.0% in 2022 to 2.3% in 2023, which is, however, within the Chinese government’s target of 5%.
China’s exports and imports are projected to grow at a healthy pace of 5.4% and 6.5%, respectively, in 2023. The country recorded robust export growth of 14.8% on an annual basis in March 2023, ending five consecutive months of decline, according to data released by China Customs. The surge was mainly driven by increased shipments to the Association of Southeast Asian Nations (ASEAN), China’s largest trade partner, which saw a 35.4% rise on an annual basis.
China is categorized as a low-risk nation and ranks 39th out of 153 nations in GlobalData Country Risk Index (GCRI Q4 2022). The country’s risk score is lower in the parameters of macroeconomic, technology and infrastructure when compared to the average of Asia-Pacific nations.
Maheshwari said: “Despite signs of economic recovery in China, the country continues to face challenges, particularly in the form of contraction in the real estate sector. Moreover, there are risks associated with escalating geopolitical tensions in the South China Sea, which could potentially strain relationships with neighbouring nations. Additionally, China’s tense relations with Taiwan and growing disparities with Western nations may have an impact on investor sentiment.”
