Economy ends year on positive note despite complex, challenging environment
Published: Jan 18, 2024 06:19 PM
Economists' View
The skyline of Lujiazui in Shanghai Photo: CFP

The skyline of Lujiazui in Shanghai Photo: CFP

China's economy ended 2023 on a positive note, recording a year-on-year GDP growth of 5.2 percent and surpassing the set target. 

In December, with the effective implementation of various macroeconomic policies, the national economy maintained the stable recovery momentum, with most indicators rebounding or stabilizing, excluding the real estate sector.

Looking back to the quarterly performance, the first quarter growth surpassed expectations, marking a strong start. The second quarter witnessed a rebound in year-on-year growth, although there was a slight slowdown on a quarterly basis. In the second half of the year, policies were implemented with a concentrated effort to accelerate economic recovery.

The recovery for the whole year is characterized by varied levels of progress sometimes featuring twists and turns. It is not easy to maintain recovery momentum and achieve annual goals in the face of intensified external pressures and internal difficulties.

From an external perspective, the momentum of global economic recovery gradually slowed down in the fourth quarter. Developed economies such as the US, EU, and the UK have essentially halted interest rate hikes but maintained relatively high interest rate levels. China still faces a complex and challenging external environment. In terms of US dollars, China's exports in 2023 dropped by 4.6 percent year-on-year, indicating that external demand continues to be a drag on the growth.

From an internal perspective, the foundation of domestic demand in China has been further strengthened. Since the fourth quarter, China has continued to implement a comprehensive package of macroeconomic counter-cyclical policies, with increased fiscal support. 

Overall, household consumption is experiencing a mild recovery, but the foundation still needs to be consolidated. From January to December, fixed asset investment increased by 3.0 percent year-on-year, and retail sales of consumer goods increased by 7.2 percent year-on-year. Investment and consumption are important pillars supporting economic stabilization.

From a production perspective, year-on-year growth of industrial production rebounded in December, while two-year average growth has declined. The structure of industrial production continues to optimize, while the production of the service industry weakened year-on-year due to the high base effect. However, the two-year average growth of the service industry has strengthened.

From a consumption perspective, the year-on-year growth rate of retail sales of consumer goods in December declined due to the high base effect, but the month-on-month and two-year average growth rates have both rebounded. Overall, current household consumption is showing a mild recovery trend, and both household income and consumption willingness need to be boosted.

From an investment perspective, infrastructure investment and manufacturing investment have performed well, continuing to play a role in supporting economic growth. However, the real estate market is still in a phase of fluctuation and bottom-finding, with various indicators showing marginal decline. Private investment, excluding real estate development investment, is higher than the overall investment growth rate.

After the Central Economic Work Conference, government ministries and commissions have successively held their annual work conferences to implement the measures mapped out in the economic work conference and structure their work for the year. 

Local governments have also launched numerous projects at the beginning of the year to promote a good start for the economic work in 2024. The main focus of China's economic work in 2024 is to "consolidate the foundation and foster innovation." It is expected that the official target for economic growth will remain around 5 percent, and policy efforts will be increased accordingly to effectively address deflation expectations and push the actual growth rate closer to the potential growth level.

The author is chief economist at China Minsheng Banking Corp.