Executive Brief

China's Economy

A special Politburo meeting chaired by President Xi Jinping on 24 July to analyze China’s economic situation and boost the economy in the second half of 2023 stressed that “the nation’s economy has enormous resilience and potential, and the positive fundamentals for long-term development remain unchanged,” but China’s economy faces new challenges:

• Insufficient domestic demand. In H1, CPI grew 0.7% and PPI dropped 3.1% YoY, indicating weak demand. In June, retail sales grew only 3.1%, compared to 18.4% and 12.7% in April and May.
• Difficulties confronting some enterprises. Industrial growth dropped to 3.5% and 4.4% in May and June, and profits were down 16.8%, indicating economic recovery had lost momentum.
• Risks and hidden dangers in key areas . Chinese economists highlighted local government debt and high unemployment among youth as two major dangers.
• Grim and complex external environment. Global demand has slowed and supplies for some essential commodities face great uncertainties.

The Politburo decided to pursue a proactive fiscal policy and a prudent monetary policy, indicating there will be no large financial stimulus package as in 2008. Main measures include:

• Invigorate capital markets and boost investors’ confidence, particularly private investment.
• Give more support to private business and continue SOE reforms.
• Promote domestic consumption, particularly for automobiles, electronics, housewares, sports, entertainment, and tourism. Wages will increase.
• Continue tax and fee reductions and impose more oversight on arbitrary fees and fines levied by local governments.
• Enforce financial supervision over local governments and introduce a package of debt relief measures for them.
• Adjust real estate policy and promote real estate market growth.
• Redouble efforts for job creation.
• Promote exports and attract more foreign investments.

The Politburo also called for:

• Accelerating the cultivation and development of strategic emerging industries and creation of more pillar industries.
• Promoting deep integration of the digital economy with advanced manufacturing and modern services.
• Advancing the secure development of AI and the healthy and sustained development of an internet-based platform economy.

On 17 July China’s National Bureau of Statistics reported that GDP grew 5.5% in H2, far lower than the 7%-7.3% growth previously forecasted by economists, both Chinese and foreign. Unless the downward trend of May and June is reversed in the second half of this year, Chinese economists say the government target of 5% GDP growth for 2023 will be difficult to achieve.

According to data from China Customs, China’s exports grew 2.1% in the first half of 2023 and grew only 1.2% in May and June. Trade with the US dropped 8.4% YoY, representing 11.2% of China’s total trade.