Last year, car production in China set a record. Restaurants and hotels were quickly filling up. Construction of new factories increased.
Yet China’s economic strengths hide weaknesses. Heavy discounts helped boost car sales, especially electric car sales. Diners and travelers chose cheaper cuisine and less expensive hotels. Due to weak demand within China, many factories are running at half capacity or even less and are working on exporting more to compensate.
China’s economy grew 5.2 percent last year as it recovered from nearly three years of strict “zero Covid” pandemic control measures, the country’s National Bureau of Statistics announced on Wednesday. During the last three months of the year, output grew at an annual pace of 4.1 percent.
In the long term, China’s growth is slowing. High debt, a housing crisis that has sapped confidence, and a shrinking and aging workforce are weighing on output.
Western economists estimate growth this year will be 4.5 percent or less, not the result of a cyclical recession but of a sharp decline that could last for several years, what economists call secular stagnation. Prices are slowly falling to levels China has not experienced since the shock of the global financial crisis in 2009, a phenomenon known as deflation that could bankrupt heavily indebted households and companies. Is.
Former Treasury Secretary Lawrence H. Summers said in a previous interview, “Secular stagnation – basically a long-term excess of savings that has led to slow growth, deflation, asset bubbles and financial stress – has moved from the Western Hemisphere to China. ” Week in Shanghai.
China’s room for maneuver is being limited due to huge debt and heavy interest payments. Since the financial crisis, central and local governments have responded to economic weakness by spending more for new roads and other infrastructure and by extending more credit to manufacturers in favored industries. This spurred growth but also resulted in ever-increasing debt, especially at the local level.
Last month, credit rating agency Moody’s issued a negative outlook for the Chinese government’s financial health. Another agency, DBRS Morningstar in Chicago, downgraded its ratings for China’s government debt in November.
Rohini Malkani, senior vice president of sovereign debt ratings at DBRS Morningstar, expressed concern that total debt in the Chinese economy now exceeds three years of economic output – a higher level than industrialized countries such as the United States.
“In the last 15 years, it has more than doubled compared to the country’s rapidly growing output”, he said.
Zhang Jun, dean of the School of Economics at Fudan University in Shanghai, said in a Comment distributed by East Is Read newsletter Beijing said the Chinese government was becoming less willing to stimulate the economy by borrowing and spending for infrastructure. As a result, he wrote, “I increasingly feel that there is a certain inevitability of a slowdown in growth.”
The economy’s performance last year was broadly in line with a consensus of 5.3 percent in a survey of economists last week by Chinese news organization Caixin. The economy also met the government’s target, set last March, that the growth rate would be around 5 percent. Premier Li Qiang said at the World Economic Forum in Davos, Switzerland on Tuesday that growth last year was “about 5.2 percent.”
Many investors are expecting China to increase its economic stimulus, but Mr. Li on Tuesday emphasized that China achieved growth last year without doing so. The Shanghai stock exchange fell 0.8 percent and Hong Kong shares fell 2.6 percent after the report was released.
“The national economy witnessed recovery momentum, high-quality development moved forward steadily, major expected targets were well achieved,” Kang Yi, commissioner of the National Bureau of Statistics, said at a news briefing.
Also on Wednesday, the statistics agency resumed releasing the unemployment rate for people aged 16 to 24, which it had stopped last summer after the unemployment rate for young people reached 21.3 percent in June . The rate was 14.9 percent in December, partly reflecting a drop in youth unemployment over the winter as last summer’s graduates find work or enroll in further education.
Mr. Kang said the agency is no longer considering many students as unemployed who may look for part-time or short-term jobs while they are in school.
Last year’s performance represents a significant rebound from 2022, when the economy grew only 3 percent. A two-month Covid lockdown in Shanghai in the spring of 2022 disrupted production in much of central China and led to a massive, nationwide drop in consumer confidence, which remained low.
Many economists had predicted a big bounce in 2023 compared to such a weak base. But after a strong start, spending declined. Housing prices fell, leaving families feeling less financially secure. And Beijing weakened the country’s social safety net. Among other measures, policymakers ended a comprehensive unemployment insurance program established during the pandemic a year ago to pressure people to find jobs.
All but the most affluent families kept a close eye on their spending. Many restaurant owners complained about steep drops in average tabs, while hotel executives were upset that travelers chose less expensive rooms.
About 6,000 eateries closed in Shanghai during the pandemic, but another 7,500 have opened in the past year, said Chris St. Cavish, a food critic and industry analyst in China’s most populous city. The growth in the industry has occurred almost entirely in inexpensive cafes that charge less than $14 per person and in luxury restaurants that charge up to $1,000 per person.
“The middle is a tough place to be a restaurant right now,” Mr. St. Cavish said.
The biggest concern about China’s economy in the coming year is the same as over the past two years: What will happen to the country’s declining housing market? Existing homes are already selling for less than a fifth of what they were at their peak in summer 2021, and that’s when buyers can be found. The speed of transactions has slowed down.
The most acute impact of real estate problems has been felt in the struggle of developers to raise funds and launch new projects. Investors are worried that construction volume could fall sharply as developers complete work on previously promised apartments in the coming months.
Tao Wang, chief China economist at Swiss bank UBS, said the long decline in construction activity has not ended, although a decline in activity is unlikely. “There is a risk that housing prices will fall further and household confidence will be further hit,” he said.
China’s state-controlled banking system has rapidly changed its priorities in the past year. Some loans are being given to real estate developers and home buyers. Instead, there has been an increase in loans given to industrial companies for factory construction.
Manufacturing investment grew 6.5 percent last year, while real estate development declined 9.6 percent, the government said on Wednesday.
Much of the increased factory output is being sold abroad. China’s trade surplus in manufactured goods is equal to about 10 percent of the country’s economic output. Exports declined in dollar terms last year as China’s currency weakened significantly, although they have started rising again since November and may rise further. Multinational retailers are liquidating excess inventory stockpiled at the end of the pandemic and have begun placing new orders.
“China’s exports are likely to grow rapidly,” said Hayden Briscoe, senior strategist at UBS Asset Management.
Car factories are being built indiscriminately all over China. Vehicle exports grew 58 percent last year and China overtook Japan to become the world’s largest car exporter.
The question now is how to persuade Chinese households to stop parking large chunks of their income in bank accounts and start spending again. “Dealing with the persistent savings overhang could be China’s defining macroeconomic challenge for the next decade,” Mr Summers said.
li yu Contributed to research.