China’s GDP grew by 5.2% at the end of the year

The Chinese economy grew by 5.2% at the end of 2023, having won back the effect of the lifting of Covid restrictions, which were lifted only a year ago. In 2024, the figure is unlikely to exceed 4.5%; in the medium term, economists also do not expect China to return to its previous growth rates. This will be hampered by both weak external demand and structural constraints in the economy – returns on investment are declining and household consumption remains too low compared with comparable income countries.

China’s GDP in the fourth quarter and 2023 as a whole increased by 5.2%. This is more than in 2022 (3%), when Covid restrictions were still in effect in the country, but less than before the pandemic. In quarterly terms, growth slowed at the end of the year – from 1.5% in the third quarter to 1% in the fourth, but the annual figure was still within the target set by the authorities for the year of “about 5%”. According to Chinese Premier Li Qiang, who spoke at Davos these days, this goal was achieved “without a massive stimulus policy.” The National Bureau of Statistics of China, however, said that achieving the year-end target was not easy, and now the economy is facing a “difficult external environment and insufficient demand.”

Growth was supported by a surge in consumption following the lifting of restrictions on domestic tourism (the overall services sector grew by 5.8% and retail sales by 7.2%), although the effect was not as pronounced or lasting as expected at the beginning of the year. Statistics also show a slowdown in the growth of capital investments – over the year they grew by 3%, including in infrastructure – by 5.9%, in production – by 6.5%. Investments in real estate decreased by 9.6%. This also affected the overall dynamics of private investments – they decreased by 0.4% (excluding real estate there would have been an increase of 9.2%).

In the context of weak (including external) demand, inflation turned out to be minimal: prices increased by only 0.2%, core inflation (excluding prices for energy and food) amounted to 0.7%. Including producer prices for industrial goods decreased by 3%, and purchase prices for materials and components – by 3.6%. The unemployment rate, on the contrary, increased slightly by the end of the year – from 5% in November to 5.1% in December. The population of China, we note, is declining for the second year in a row, in 2023 by another 2.08 million – to 1.41 billion people.

This year, the growth rate will be even lower – analysts predict an increase in Chinese GDP by 4–4.5% amid continued weak external demand and problems in the real estate market (this puts pressure on domestic demand). Structural problems are also accumulating in the economy – high debt levels, an aging population and imbalances due to previous stimulating policies. The continuation of the crisis in the real estate market also reduces regional budget revenues and limits their ability to take new incentive measures. Due to the size of the industry, the decline is spreading to related sectors such as steel, cement and construction equipment. “Half of the cost of real estate is the cost of land and taxes, this is actually a transfer to local budgets. Many municipalities lived off this money – this is a lot of money, it reached 10% of GDP,” Andy Xie, head of Rosetta Stone Advisors, noted in an interview with Kommersant.

The World Bank (WB), in its country report on China, indicates not only a decrease in investment activity in recent years, but also a change in the structure of investments: the total decline in investment in real estate over two years was 18%, while investment in industry increased by 16% – this is a consequence of growing demand for products from new industries (in particular, electric vehicles, batteries, emission reduction technologies), as well as the result of government support for sectors such as semiconductor production (there are US restrictions on the supply of such products to China). The World Bank expects that investment growth will no longer be the same as before the pandemic due to lower demand for housing (and the high debt burden of developers), so an acceleration in consumption will be required to maintain growth rates. The contribution of household consumption to Chinese GDP, meanwhile, still remains low by world standards due to the persistence of a high savings rate: in 2010 it provided 34.6% of GDP, in 2022 – 37.2%. The average level for countries with similar income levels is 45.5%, the World Bank notes.

Tatiana Edovina