China surpasses growth target for 2023 with 5.2% expansion, but tough road lies ahead

To sustain the hard-won momentum, policymakers will need to do more in 2024, given that China’s beleaguered property market and tepid consumer demand are expected to continue to weigh on growth, experts have said.

Aw Cheng Wei

Aw Cheng Wei

The Straits Times


The latest figures showed that the economy grew 1 per cent in the three months to December 2023, compared with the previous quarter. PHOTO: THE STRAITS TIMES

January 18, 2024

SINGAPORE – China’s economy grew 5.2 per cent in 2023 on the back of government spending – exceeding the official target of around 5 per cent – but the road ahead this year remains rocky, analysts said.

To sustain the hard-won momentum, policymakers will need to do more in 2024, given that China’s beleaguered property market and tepid consumer demand are expected to continue to weigh on growth, they added.

Officials will have their work cut out for them, as “looking back in 2023, investor confidence and consumer sentiment have proved to be difficult to repair and restore”, said Professor of Economics Albert Hu of the China Europe International Business School in Shanghai.

In a move to further boost confidence in China’s economy, Premier Li Qiang released the full-year growth figure in his address to the World Economic Forum – a gathering of the world’s top policymakers and analysts – in Davos, Switzerland, on Jan 16, one day before the traditional release of the closely watched full-year economic data by the National Bureau of Statistics (NBS).

Dr Dan Wang, chief economist of Hang Seng Bank in Shanghai, told The Straits Times: “I think he was really trying to prop up market confidence and give people more hope (with the unusual release).”

Doubts had risen among economists that China could hit its stated target when the country released its half-year growth figure in July.

The doubts were a quick reversal of fortune from March, when China announced its target of around 5 per cent during the country’s annual parliamentary meetings and economists said the goal was low, especially given 2022’s stunted base.

In 2022, China’s economy grew 3 per cent, missing its growth target of around 5.5 per cent – the first time it had failed to hit its stated goal by such a significant margin – owing to the damage from the country’s zero-Covid policy, which was lifted only in December that year.

China’s economy had also been reeling from regulatory clampdowns on its formerly high-flying sectors of education, technology and, in particular, property. That made it harder for policymakers to maintain the growth momentum in the first three months of 2023.

As a result, businesses started to lose confidence in China, with residents in the country also becoming more conservative in their spending after their savings took a hit during the Covid-19 pandemic.

In 2023, the Chinese economy grew 4.5 per cent between January and March, from the same period a year ago, before going on to expand 6.3 per cent in the next three months.

The quarter-on-quarter expansion, however, slowed to 0.8 per cent from 2.2 per cent in the first quarter.

Growth then picked up again between July and September, with the year-on-year figure coming in at 4.9 per cent and the quarter-on-quarter expansion hitting 1.3 per cent.

The latest figures showed that the economy grew 1 per cent in the three months to December 2023, compared with the previous quarter, with the year-on-year growth coming in at 5.2 per cent in the last quarter.

It was slightly lower than the 5.3 per cent predicted by economists polled by media outlet Reuters. The figure was in line with predictions by Bloomberg, another media outlet.

To boost growth in 2023, China rolled out consumption vouchers, released liquidity into the market and did away with restrictions on property purchases to stem the decline in its economy. The central bank had injected more than 500 billion yuan (S$95 billion) into the economy at least twice in 2023.

Property slump and youth unemployment

The efforts paid off, economists said, but more will need to be done to sustain the growth momentum. Economists expect the policy boosts to continue in 2024.

“Going into 2024, there is wide expectation that the government may step up fiscal and monetary stimulus, which will be useful and necessary,” Prof Hu said.

But Dr Zhang Zhiwei, chief economist of Pinpoint Asset Management in Hong Kong, said the key question for China’s economic growth in 2024 is the property market, which is currently in a slump.

Prices for new homes in China fell in December at the fastest pace since February 2015, marking the sixth straight month of declines, NBS data showed on Jan 17.

Property sales by floor area also dropped 8.5 per cent for the year, with new construction starts slumping 20.4 per cent.

In response to a question by ST during Jan 17’s data release, NBS director Kang Yi said property transactions in 70 major cities have been rising mildly, and that the market has shown “positive changes, with the decline in property investment narrowing”.

Youth unemployment was another problem that had ballooned during the pandemic, as millions of Chinese undergraduates sought to further their education and bide their time amid the gloomy economy, the economists added.

On Jan 17, the NBS said China’s youth unemployment rate was 14.9 per cent in December, a drop from the record high of 21.3 per cent in June before the authorities stopped publishing the data, citing the need to refine its data collection methodology.

A new category – for those aged between 25 and 29 – had also been created to reflect the graduate employment situation better. The jobless rate for this group was 6.1 per cent in December.

Mr Kang said the decline in the youth unemployment rate – for those aged between 16 and 24 – was due to the changes to data collection, which now excludes students, to “more accurately represent the employment situation in China”.

Prof Hu said the new figures, however, still showed an “anaemic youth job market”.

“The private sector is responsible for most of the job creation in China. Unless private firms’ confidence returns, job creation will remain weak,” he added.

In 2024, a projected 11.79 million graduates are due to enter the workforce, up from the previous high of 11.58 million in 2023.

Business sentiment, however, is unlikely to pick up in 2024, particularly for companies that are not aligned with the national strategy, such as those outside of hard technology, including advanced manufacturing.

“Domestic demand is too suppressed, with the growth in income slowing,” said Dr Wang.

“This means that companies in general services will suffer probably even more in 2024 than in 2023, as people are going to be more conservative.”

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