China without “zero tolerance policy” showed GDP growth of 5.5% in the first half of 2023

China’s GDP for the first half of 2023 grew by 5.5% compared to the same period a year earlier and amounted to 59.3 trillion yuan (about $8.3 trillion). This is evidenced by the preliminary data released on July 17 by the National Bureau of Statistics of the People’s Republic of China.

In the second quarter of 2023, the Chinese economy grew by 6.3% in annual terms (in the first – by 4.5%), but only by 0.8% compared to the previous quarter. Growth rates are slowing down – for comparison: in the 1st quarter of 2023, the growth compared to the 4th quarter of 2022 was 2.2%. The seemingly convincing growth in Q2 compared to April-June 2022 is due to the fact that China had strict anti-COVID restrictions at that time (they have now been cancelled).

According to Bloomberg, the published data turned out to be lower than the forecasts of many analysts. Thus, according to a survey of analysts by Caixin, the growth of the Chinese economy in the first six months of 2023 was expected at the level of 7% compared to 2022, while The Wall Street Journal respondents predicted growth by 6.9%.

On March 5, 2023, at the session of the National People’s Congress (NPC), the government of the People’s Republic of China outlined the goal of GDP growth for 2023 – 5%. In 2022, China’s GDP grew by only 3%.

June figures reflect a marked slowdown in consumption growth, which the authorities have been banking on as a driver of economic recovery. Retail sales in China increased by 3.1% in June compared to the same month a year ago (up 12.7% in May). In total, in the first six months of 2023, retail indicators grew by 8.2%. Home sales in January-June increased by 3.7%, while construction volumes fell by 24.3%. After the release of new data on the Chinese economy, the yuan weakened against the US dollar by about 0.3% (the Chinese currency recently hit its eight-month low). According to Reuters analysts, the Chinese authorities can now probably resort to government stimulus measures.

According to Bloomberg, a number of economists immediately revised their annual forecasts – for example, Citigroup and JPMorgan now expect China’s GDP to grow by 5% instead of 5.5%, stipulating that reaching this bar is also in jeopardy.

As early as July 13, the PRC Customs Administration reported that the country’s total foreign trade in the first half of 2023 decreased by 4.7% compared to the same period a year earlier to $2.918 trillion. Exports fell to $1.663 trillion – by 3.2%, while imports fell to $1.255 trillion (-6.7%). At the same time, the trade turnover between China and Russia in the first half of 2023 increased by 40.6% compared to the same period in 2022 and amounted to $114.54 billion.

High nominal GDP growth in the second quarter of 6.3% yoy is indeed below expectations and largely reflects the low base of last year, when China was under severe covid restrictions, says CSR First Deputy CEO Boris Kopeikin. China’s economic growth is lagging behind desired amid weak domestic demand, he adds, and private investment is also not showing growth. The lack of external demand also has an effect, where it is necessary to take into account the growing non-economic barriers and fears of a recession in a number of developed economies, Kopeikin notes. At the same time, the statistics for June 2023, both in terms of the activity of retail buyers and exports, look worse than in May.

The baseline scenario further assumes only a limited level of support for economic activity from the authorities – both a moderate reduction in rates and some increase in intergovernmental support for local authorities, says Kopeikin. The current dynamics, including Chinese imports, are not encouraging in terms of supporting global economic growth, he concludes.

So far, the trend in the Chinese economy fully coincides with the forecasts and guidelines of the PRC government, says Sergey Lukonin, head of the economic and political sector of China at IMEMO RAS. With other countries seeing much slower growth rates, China’s numbers look pretty good, he adds. The PRC is already running an infrastructure construction program, and the authorities are also trying to revive the real estate market, which can bear fruit in the III-IV quarters of the year, the expert notes. A much more serious problem for the Chinese economy now is not the pace of growth, but the debts of the provinces, the difficulty of restarting the real estate market and high youth unemployment. Some regional authorities (for example, Guizhou province. – Vedomosti) have already asked for help from Beijing due to their inability to cope with the debt burden on their own, Lukonin notes.