An aerial view of the port of Tangshan, Hebei Province, in December 2023. [Photo / Xinhua]
Last year, international observers accused China of spreading global inflation and deflation and causing economic collapse. In fact, the Chinese economy has achieved a gentle recovery despite the gloomy global economic situation.
As global business and political leaders flocked to the World Economic Forum in Davos, Switzerland, Prime Minister Li Qiang took to the podium to tell the world that China's economy had recovered and recorded an upward trend in 2023. In fact, the Chinese economy grew by about 5.2 percent last year – slightly higher than the official target of “around 5 percent.”
And as Li said, no matter how the global situation changes, China will stick to its basic opening-up policy and open its doors more and more.
In the fourth quarter of 2023, China's GDP growth reached 5.2 percent. While retail sales rose 7.4 percent year-on-year in December, consumers remained cost-conscious despite the gradual return to the market.
However, the Spring Festival holiday is expected to produce “9 billion passenger trips,” accelerating growth in the retail, tourism and transportation sectors.
In fact, there is a lot of catching up to do in China. The need is to unleash this consumer power and the first requirement is a promising labor market outlook.
According to China's National Bureau of Statistics, the surveyed urban unemployment rate was 5.1 percent in December.
Industrial activity is also picking up, with industrial production increasing 6.8 percent year-on-year in December, exceeding forecasts. The same applies to fixed investment, which rose by 3 percent in 2023 and was therefore slightly above the forecast increase.
Importantly, there is also broad expectation of targeted fiscal support. And given the rise in real interest rates, there is still scope for interest rate cuts. When will they come? China's 10-year real yield is still higher than that of the US, where key interest rates remain high due to perceived inflation concerns. With the US Federal Reserve likely to enter the interest rate cutting cycle later this year, China could see interest rate cuts.
For this reason, China's top leadership emphasized making sustained efforts to develop the country's “financial power” to build a safe, efficient and internationally competitive financial system.
As Prime Minister Li noted in Davos, there are currently about 400 million middle-income people in China, and this number is expected to double to 800 million in the next decade. In contrast, middle-class real income in the United States has remained largely stagnant over the past four decades, and the situation in the European Union has been no different.
As Li said in Davos, urbanization in China will lead to huge demand in sectors such as housing, education, healthcare and elderly care over the next decade. And another 300 million people are expected to migrate from rural to urban areas in China, increasing the secular potential for investment in modernizing urban transport and telecommunications infrastructure and creating new opportunities for domestic and international financial institutions.
After several years of deleveraging in the real estate sector, the Chinese economy appears to have achieved a soft landing, boding well for a gentle economic recovery in 2024. However, the real estate market will take time to fully recover. Top-tier, high-income megacities tend to be able to borrow more to support local development, while relatively low-income cities are constrained by aggressive public finance.
As the Standard & Poor's Global Ratings report noted, although China's real estate sector has evolved, it appears to have stabilized and found balance. At the same time, China has moved from export- and investment-driven growth to high-quality, consumption- and innovation-driven development – a monumental process that took about a century in the West but only a few decades in China.
In the mid-2000s, steel production growth peaked at 30 percent; Today it is slowing down into negative territory. In two to three decades, China has gone from catching up with the West to becoming a leader in cutting-edge technologies and innovations. For example, China is a leader in both production and consumption of electric vehicles (EVs). The county's already booming electric vehicle sales are much higher than those of the United States and other electric vehicle providers.
Accordingly, economic reforms are likely to shift from the supply side to the demand side. To accelerate this transition, policymakers are likely to increasingly focus on human capital constraints rather than the infrastructure that has worked in the past. These changes require parallel reforms and support, particularly in the real estate, education and healthcare sectors.
However, unfinished residential units, local government debt and geopolitical challenges remain risks this year. The first two could now be viewed as soft risks; but the third is a black swan, extremely consequential and yet unpredictable.
Perhaps that's why Gita Gopinath, deputy head of the International Monetary Fund, asked just a month ago whether the international community was on the brink of “Cold War II.”
Challenging external headwinds reflect some moderation for now. But as long as Western geopolitical unilateralism and trade protectionism prevail, the global recovery will be constrained by downside risks and the potential for new and increasingly destructive, unjustified wars.
As China's massive transformation and the West's secular stagnation show, the world needs peace and economic development, not economic unilateralism and geopolitical tensions.
The author is the founder of the Difference Group and has worked at the India, China and America Institute (USA), the Shanghai Institutes for International Studies (China) and the EU Center (Singapore). The views do not necessarily reflect those of China Daily.
The opinions expressed here are those of the author and do not necessarily reflect the views of China Daily and the China Daily website.
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