China’s Economy Appears To Be Different Than It Was Prior To The Pandemic

It is almost certain that the Chinese economy of 2023 will not resemble that of 2019.

The crackdown by Beijing has caused a decline in real estate. After a spike, exports have slowed. The largest non-state-owned company in China by revenue this year was, a Chinese e-commerce giant, which took the place of Huawei, which was hampered by U.S. restrictions.

Beijing abruptly ended many of the lockdown measures and Covid testing requirements that had slowed economic growth over the previous 18 months in the last month. Analysts caution that the path to full reopening will be difficult, but they now anticipate that the Chinese economy will recover more quickly than anticipated.

Economists predict that the factors supporting that growth will almost certainly be different from how they were three years ago.

Leading Chinese investment bank CICC analysts stated in their 2023 outlook released last month that China’s growth model is shifting from one in which the so-called digital and green economy play greater roles to one in which real estate and infrastructure play less of a role. They cited the 20th National Congress of the Chinese Communist Party, which placed a strong emphasis on innovation.

Software, transmission of information, and communication devices all fall under the digital economy category. Electric power, steel, and chemicals are just a few examples of the industries that need to invest in order to reduce their carbon emissions.

According to projections from CICC, total investments in the digital economy are expected to increase by more than seven times over the course of the following five years, reaching 77.9 trillion yuan ($11.13 trillion).

This exceeds expected cumulative investment in real estate, traditional infrastructure, and the green economy, making digital the largest of the four categories, according to the report.

According to the report, real estate will be the largest investment category in 2021 and 2022. However, according to CICC analysts, real estate investment fell by about 22% this year compared to last, while investment in the digital and green sectors increased by about 24% and 14%, respectively.

In 2020, Beijing tightened restrictions on developers’ reliance on debt, contributing to defaults and a drop in housing sales and investment. Authorities have relaxed many of these financing restrictions this year.

While much of the world struggled to contain Covid-19 in 2020 and 2021, China’s swift control of the virus helped local factories meet surging global demand for health products and electronics.

Demand is currently declining. According to Wind Information, China’s exports began to fall year on year in October for the first time since May 2020.

A drop in net exports is expected to reduce growth by 0.5 percentage point next year, according to Goldman Sachs Chief China Economist Hui Shan and a team in a December 16 note. Net exports have boosted China’s GDP growth in recent years, contributing up to 1.7 percentage points in 2021, according to analysts.

However, according to customs data, China’s exports to the Association of Southeast Asian Nations surpassed those to the United States and the European Union on a monthly basis in November.

“Exports to ASEAN countries may serve as a mild buffer to the pressures in EU and US markets,” Citi’s China economist Xiaowen Jin and a team said in a note Wednesday. They expect ASEAN’s GDP growth to rebound in 2023, while the U.S. and EU spend part of next year in recession.

Jin stated that China’s car exports, particularly those of electric vehicles and related parts, have helped to support overall exports this year.

Beijing has made significant efforts to accelerate the development of the national electric vehicle industry. Many brands, ranging from Nio to BYD, have begun to sell passenger vehicles in Europe and other countries.

“The rapid deceleration in exports also means China needs to tap into domestic markets for growth over the foreseeable future,” said Hao Zhou, chief economist at Guotai Junan Securities in a Dec. 15 note. “With the easing of Covid restrictions, consumption is likely to see meaningful and sustainable recovery from next year.”

He anticipates a 6.8% increase in retail sales and a 4.8% increase in national GDP next year.

This month’s central government policy announcements have prioritized increasing domestic consumption. Since the pandemic, retail sales have lagged behind overall growth, while a record number of people have preferred to save.

Goldman Sachs analysts raised their 2023 GDP forecast from 4.5% to 5.2% on the assumption that the economy will reopen sooner than expected, with consumption being the primary driver.

However, they cautioned that income and consumer confidence will take time to recover, which means that any release of “pent-up demand” next year may be limited to a few categories such as international travel.

(Adapted from


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