Among these targets, the GDP growth figure has received the most attention. Given last year’s Economic crisis With domestic consumption just beginning to recover, there were hopes that the government would set a more aggressive target to signal its intent to recover more strongly. Therefore, the target of around 5 percent was too conservative in the eyes of some investors.
However, taking into account both structural and cyclical factors, the government’s growth target is more realistic and achievable than conservative.
Although investors have recently focused on the recovery in consumption following the lifting of anti-pandemic measures, the Chinese economy still faces several headwinds in 2023.
exports are experiencing the biggest turnaround, moving from a major contributor to the economy during the pandemic to a potential drag this year. Similar to the rest of Asia, China’s exports began to slow late last year amid falling demand from the United States and Europe. Export growth fell by 0.3 percent year-on-year in October 2022, decelerating further to a 6.8 percent less than in the previous year in the first two months of 2023.
Consumption is recovering strongly. While we await official consumer spending data for January-February, high-frequency proxies such as domestic travel, box office and other traffic data show consumption is back on track. However, this type of “revenge spending‘ is not enough to get the economy back on a sustainable growth path.
The economy also needs a recovery corporate trust to attract investment again. China’s policy of promoting new industries such as semiconductors and other technological hardware to reduce dependency on imports, renewable energy and electric vehicles could be a growth area in the medium term.
The real estate market plays an important role in the economy and the downturn over the past year has been significant Financial pressure for developers and subdued buyer sentiment. Especially the authorities local governments, have since eased several restrictions to improve market dynamics. real estate deals are begins to stabilize after a year of decline.
Whether this market can recover fully depends on the government’s stance on the role of residential property as an investment asset. If investors don’t expect a decent return from real estate investments, the sector could take longer to recover.
In addition to these cyclical factors, it’s worth considering some of the long-term structural factors driving the Chinese economy. The International Monetary Fund’s World Economic Outlook forecasts China’s economic growth to average around 4.6 percent between 2023 and 2027. JP Morgan’s Long-Term Capital Market Assumptions estimates that China’s economic growth should average around 4 percent over the next 10 to 15 years.
Employees work on the production line of glass panels for mobile phones at a factory in Zunyi, Guizhou province, March 6. Photo: Reuters
A large part of this slowdown is due to demographics and a slowdown growth in labor supply. In addition, productivity growth will slow as the economy matures unless new sectors emerge that help boost worker productivity. This is where investment in technology and new industries can play a crucial role.
In a year when growth in the US and Europe is slowing or potentially slipping into recession, a 5 percent growth target for China is respectable. This requires Beijing to maintain loose monetary policy and increase its support for the private sector. Global investors will be watching the new leadership team closely to assess whether the Chinese economy is on a steady growth path.
Tai Hui is Chief Market Strategist for Asia Pacific at JP Morgan Asset Management
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