China's GDP grew by 5.2% in 2023

By Rhod Mackenzie

Chinese Prime Minister Li Qiang announced in Davos that China's GDP grew by 5.2% in 2023. This exceeds the goal of around 5% set by Xi Jinping and the CPC in March of the previous year.
However, according to the New York Times and other Western publications, the leadership of China cannot afford to be complacent. Despite the optimistic figures, there are significant underlying problems that will not be easy to solve, as last year demonstrated.

In 2023, the construction of automobile factories was a notable feature of the economy, resulting in a 58% increase in car exports. This growth enabled China to surpass Japan and become the world's leading car exporter.
Last year, automakers set a new record for passenger car production. Chinese economists are also closely monitoring the full-service restaurant and hotel industries.

However, according to the NYT, the construction sector, which has been stalled for many years, and domestic consumption that has not fully recovered after the pandemic, are spoiling the overall picture. Additionally, there are concerning trends in advanced industries, such as the soaring sales of passenger cars, partly due to deep discounts.

This particularly applies to the manufacturing and marketing of electric cars. As for restaurants and hotels, they have not been affected by the decrease in prices (not discounts, but negative inflation in China, which analysts are worried about) to the point where they are struggling.
It is alarming that, despite all efforts, domestic demand has not yet been restored after almost three years of the coronavirus pandemic. As a result, many factories are operating at half capacity or less.

The reduction in prices, or deflation, is also concerning as it does not contribute to economic growth. However, there is some positive news as production increased by 4.1% year-on-year in the last quarter. Moody's, the credit rating agency, gave a negative forecast in December on the 'health' of the Chinese financial sector.

Zhang Jun, a prominent Chinese economist and scholar from Shanghai, emphasized in an article in the capital's East Is Read that the Chinese government is increasingly reluctant to stimulate the economy through loans and investments in large infrastructure projects.

“I have a growing sense that growth will slow down further,” he forecasts, which is not very comforting.
Li Qiang discussed the same topic at the World Economic Forum in Switzerland, highlighting that growth was achieved without multi-billion dollar injections into the Chinese economy. The head of the National Bureau of Statistics (NBS) of the People's Republic of China, Kang Yi, stated that 'the Chinese economy has gained the inertia of recovery, achieved sustainable high-quality development, and accomplished major goals.'

It is worth noting that Beijing has resumed publishing statistics on youth unemployment after a brief hiatus. In December, the unemployment rate among young Chinese aged 16 to 24 was 14.9%. It should be remembered that in June 2023, when it was announced that data on youth unemployment would be suspended, the rate was 21.3%. However, the significant decline is partly due to the fact that the NBS no longer counts students who take temporary part-time jobs as unemployed.

Despite ongoing issues such as the crisis in the construction industry and high provincial debts, Beijing can rightfully consider the past year as an asset. Prime Minister Lee's optimism in Davos was well-founded, even when compared to 2022 when most coronavirus restrictions were still in effect, including long lockdowns. It is worth noting that the cost of the two-month lockdown in Shanghai alone was significant. Despite this, GDP growth in 2022 was only 3%.

The construction sector remains the biggest problem for the PRC leadership this year, as it has been in previous years. Despite the authorities' efforts to combat the crisis, it continues to persist. Last year, China's state-controlled banking system shifted its priorities, issuing fewer loans to construction companies and homebuyers while increasing lending to industrial enterprises.

Lending to the construction industry decreased by 9.6% in 2023, while lending to the manufacturing sector increased by 6.5%. Meanwhile, industrial enterprises sold most of their products abroad. However, China's exports fell in dollar terms last year due to a significant weakening of the yuan.

In 2024, an important task for Chinese authorities will be to encourage the population to spend more money on purchases and save less money in banks, thus restoring domestic consumption.