China's 2023 Economic "Report Card" is out. On January 17, the National Bureau of Statistics announced the performance of the national economy for the year 2023. The data shows that the Gross Domestic Product (GDP) for the entire year of 2023 was 126.0582 trillion yuan, growing by 5.2% over the previous year at constant prices.
Looking at it by quarters, the GDP grew by 4.5% in the first quarter, 6.3% in the second quarter, 4.9% in the third quarter, and 5.2% in the fourth quarter. On a quarter-over-quarter basis, the GDP in the fourth quarter increased by 1.0%.
Specifically, industrial production steadily rebounded, with the national value added of industries above designated size growing by 4.6% compared to the previous year (3.6% in 2022).
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Consumption recovered rapidly, with the total retail sales of consumer goods reaching 47.1495 trillion yuan for the year, growing by 7.2% compared to the previous year (a decrease of 0.2% in 2022), with consumption contributing 82.5% to economic growth. Notably, service consumption saw a rapid increase, with service retail sales growing by 20.0% over the previous year.
Investment growth in 2023 slowed down compared to 2022, with the national fixed asset investment (excluding rural households) amounting to 50.3036 trillion yuan, growing by 3.0% over the previous year (5.1% in 2022). Private investment also declined, with a decrease of 0.4% in 2023 (an increase of 0.9% in 2022); excluding real estate development investment, private investment grew by 9.2%.
Foreign trade imports and exports in 2023 also slowed down compared to 2022, with the total value of goods imports and exports for the year reaching 41.7568 trillion yuan, growing by 0.2% over the previous year (7.7% in 2022). Of this, exports were 23.7726 trillion yuan, growing by 0.6% (10.5% in 2022); imports were 17.9842 trillion yuan, with a decrease of 0.3%.
Resident income continued to increase in 2023, with the per capita disposable income of the national residents reaching 39,218 yuan for the year, growing by 6.3% in nominal terms over the previous year (5.0% in 2022), with an actual increase of 6.1% after deducting price factors.
The Consumer Price Index (CPI) in 2023 rose by 0.2% compared to the previous year (2.0% in 2022), showing a significant decline.
Kang Yi, the head of the National Bureau of Statistics, stated at a press conference on January 17 that the economic performance of the past year can be summarized as a positive rebound, full of substance, impressive, and not easy to achieve. When observing China's economic performance, it is necessary to compare not only with its own past but also with other countries. China's economic growth rate of 5.2% in 2023 is not only higher than the global expected growth rate of around 3% but also ranks among the top in the world's major economies. China's contribution to global economic growth in 2023 is expected to exceed 30%, making it the largest engine of global economic growth.Experts interviewed by Caijing have indicated that, on the whole, China's economic growth in 2023 has generally met expectations and is showing a weak recovery. Luo Zhiheng, Chief Economist and Dean of Research at Yuekai Securities, told Caijing that the economic operation in 2023 has been a recovery with twists and turns, characterized by three core features. First, it is a structural recovery rather than a comprehensive one, with the growth in 2023 mainly driven by the service sector and high-end manufacturing, while real estate, finance, and internet platform economies still face some impacts. As a result, employment is also structural, with the service sector and infrastructure investment improving the employment situation for migrant workers, but there is significant pressure on youth employment.
Second, the recovery is unstable, with relatively insufficient internal momentum, manifested in the insufficient recovery of consumption and manufacturing investment, and it is greatly affected by external changes. Changes in the external environment can lead to increased fluctuations in economic operations.
Third, the nominal growth rate is lower than the actual growth rate, resulting in a lower increase in residents' income, government fiscal revenue, and corporate business revenue and profits, creating a divergence between macro and micro perceptions. In the first three quarters, the actual GDP growth rate was 5.2%, while the nominal growth rate was only 4.9%.
What changes has China's economy shown in 2023? Zhou Jingtong, Deputy Dean of the Bank of China Research Institute, stated that the Chinese economy in 2023 has shown four major shifts: the economic growth momentum has shifted from investment to consumption; the export momentum has shifted from traditional goods to emerging markets, with the importance of emerging economies increasing; the production momentum on the supply side has shifted to the service sector, with strong driving forces from new energy and information technology; and policy adjustments in the real estate market have intensified, with an increasing number of positive factors in risk prevention and stability expectations.
2023 is the first year of economic recovery after the pandemic in China, but a V-shaped reversal has not occurred. Liang Jing, a researcher at the Bank of China Research Institute, believes that there have been significant changes in the supply and demand relationship in the real estate market in recent years. Despite policy support, it is difficult to change market expectations in the short term. Weakened international demand also affects the export economy. In the first three quarters of this year, the policy intensity was relatively conservative compared to expectations. The three-year COVID-19 pandemic has caused trauma to the Chinese economy, and the improvement of corporate operations, residents' employment, and income will take time.
Experts interviewed by Caijing have expressed that the prominent issue in economic development in the past year and currently is still the insufficient effective demand and weak expectations. The internal momentum for economic self-repair still needs to be strengthened, and the recovery and expansion of demand are key to the continuous improvement of the economy in 2024.
Consumption's contribution to economic growth reaches 82.5%
Compared with 2022, a significant change in China's economy in 2023 is the substantial increase in the contribution of consumption to economic growth.
Data released by the National Bureau of Statistics shows that in 2023, the total retail sales of social consumer goods reached 47.1495 trillion yuan, a 7.2% increase from the previous year (a 0.2% decrease in 2022).
Specifically, by type of consumption, in 2023, the retail sales of goods were 4.18605 trillion yuan, a 5.8% increase; catering revenue was 0.5289 trillion yuan, a 20.4% increase. The sales of basic living goods grew steadily, with retail sales of clothing, footwear, and textiles, as well as grain, oil, and food products by units above the designated size growing by 12.9% and 5.2%, respectively. The sales of upgraded goods grew rapidly, with retail sales of gold, silver, and jewelry, sports and entertainment goods, and communication equipment by units above the designated size growing by 13.3%, 11.2%, and 7.0%, respectively.In 2023, consumption became the primary driving force for economic growth. At a press conference on January 17, the head of the National Bureau of Statistics, Kang Yi, introduced that in 2023, the contribution rate of final consumption expenditure to economic growth reached 82.5%.
Recently, the "China Economic and Financial Outlook Report (2024)" released by the Research Institute of the Bank of China showed that in the first three quarters of this year, the contribution rate of consumption to economic growth reached 83.2%, driving GDP growth by 4.4 percentage points, even higher than the pre-pandemic level of 2017-2019 (59.5%).
It is also worth noting that in 2023, the growth of service consumption was relatively fast, with the annual service retail sales increasing by 20.0% compared to the previous year. In this regard, Li Xunlei stated that this also reflects that with the increasing pursuit of life quality by residents and the acceleration of aging, the proportion of service consumption will continue to rise. For example, with the increase in the number of retirees, residents' demand for tourism, leisure, elderly care, and health care will further increase.
The "China Economic and Financial Outlook Report" released by the Research Institute of the Bank of China believes that an important reason for the high growth of consumption in 2023 is the low base last year. After excluding the base effect, the overall consumption still shows a weak recovery.
Lu Ting, the Chief Economist of Nomura Securities, said that after the epidemic, everyone generally expects a high consumption recovery in 2023. Statistics show that during the epidemic, the excess savings of Chinese residents increased by more than 10 trillion yuan, and it is expected that a huge rebound in consumption will occur in 2023. However, residents are still more cautious in consumption in 2023.
In Luo Zhiheng's view, in the past year, residents were not without consumption needs, but were suppressed by many factors. For example, the three-year epidemic led to a supply contraction in the offline service industry, which has not fully recovered to this day; some houses were not delivered smoothly, and residents were more cautious in buying houses, leading to a slump in consumption of home appliances, furniture, and home decoration; the nominal economic growth rate was less than the actual growth rate, and the capital market performance was low, which made residents feel less about the economic recovery, and to some extent, made residents more inclined to increase savings rather than consumption.
Li Xunlei stated that in 2023, both PPI and CPI have experienced negative growth, which is also rare in history. The change in pork prices in 2023 was not significant, with the price of pork per kilogram in Beijing being 15 yuan in 1997 and 17 yuan now. The small increase in the price of necessities reflects the weak consumption of residents. The fundamental reason for weak consumption is still that income growth has not significantly exceeded the GDP growth rate. To boost consumption, it is necessary to increase residents' income.
As for the consumption performance in 2024, Luo Zhiheng believes that the gap between consumption and the potential trend level in 2024 is expected to narrow again. First, the acceleration of nominal economic growth will drive the growth of residents' income; second, the average consumption tendency of residents will continue to recover, increasing the income elasticity of consumption; third, the supply constraints such as the offline service industry will continue to relax, providing more consumption scenarios for residents; fourth, policies such as ensuring the delivery of buildings and promoting consumption will support and stimulate the consumption of durable goods.
Wang Tao believes that if the real estate market is basically stable in 2024, consumer confidence can basically stabilize. Under such circumstances, it is predicted that consumption in 2024 can still continue to recover and grow. First, the growth of residents' income is predicted to be around 5% this year, and at the same time, under the condition of stable confidence, some of the excess savings accumulated during the epidemic period will be slightly released. Therefore, it is expected that the growth of consumption in 2024 will be around 5.5%, exceeding GDP growth, and belongs to the recovery growth.
Zhu Haibin, Chief Economist of JPMorgan Chase in China and Head of Economic Research for Greater China, believes that the repair of consumption is a key variable for 2024, especially whether middle-income families can stabilize and repair as soon as possible. Efforts should be made to expand domestic demand and form a virtuous cycle of mutual promotion between consumption and demand. However, the possibility of introducing measures such as issuing consumption coupons and cash is relatively small. At the end of July 2023, the National Development and Reform Commission introduced support policies for consumption in areas such as automobiles, home furnishings, and cultural tourism, which is also a policy direction that can be considered in 2024. "In addition, whether the government can increase the support for social security and reduce the precautionary savings of the household sector from a medium and long-term perspective, we hope to see a shift in policy direction in 2024."Real estate investment remains sluggish, and the growth rate of fixed asset investment slows down.
In 2023, the sluggish real estate investment dragged down overall investment and private investment faced significant downward pressure. Data shows that in 2023, the national fixed asset investment (excluding rural households) was 50.3036 trillion yuan, growing by 3.0% compared to the previous year (5.1% growth in 2022); excluding the impact of price factors, the growth was 6.4%.
Looking at different fields, infrastructure investment grew by 5.9% (9.4% growth in 2022), and manufacturing investment grew by 6.5% (9.1% growth in 2022). Real estate development investment decreased by 9.6% (10.0% decrease in 2022), with the national commercial housing sales area at 1,117.35 million square meters, a decrease of 8.5%; the commercial housing sales volume was 11.6622 trillion yuan, a decrease of 6.5%.
High-tech industry investment grew by 10.3%, which is 7.3 percentage points faster than the total investment. Among them, high-tech manufacturing and high-tech service industry investments grew by 9.9% and 11.4%, respectively.
Real estate contributes about a quarter to China's GDP. In 2023, the continued sluggishness in the real estate market has had a certain drag on overall investment and infrastructure investment growth, and it has become one of the main obstacles on the road to China's economic recovery in 2023.
In addition to the real estate market, private investment was also relatively sluggish in 2023. Data from the National Bureau of Statistics shows that private investment decreased by 0.4% in 2023; excluding real estate development investment, private investment grew by 9.2%. In the first few months of this year, the growth rate of private investment continued to decline, with January-February, January-March, and January-April at 0.8%, 0.6%, and 0.4%, respectively. From January to May, private investment fell to -0.1%, showing a rare negative growth. By January to June, it had dropped to -0.2%. In the view of many experts, in addition to being affected by the sluggish real estate investment, the lack of confidence among private enterprises is also an important reason for the decline in private investment.
In 2023, during research by "Finance and Economics" journalists in the Beijing-Tianjin-Hebei, Yangtze River Delta, and Pearl River Delta regions, it was understood that the lack of confidence among private enterprises comes from two aspects: on the one hand, China's economy has not yet shown a strong recovery trend, and on the other hand, it is due to the impact of complex internal and external factors on enterprises and entrepreneurs in the past few years, leading to a lack of security among entrepreneurs.
Looking forward to 2024, the Central Economic Work Conference at the end of 2023 proposed to expand effective investment. Luo Guosan, Director of the Fixed Asset Investment Department of the National Development and Reform Commission, also stated that in 2024, investment direction will be reasonably grasped to ensure that investment forms high-quality supply and focuses on expanding effective investment.
Luo Zhiheng stated that actively expanding effective investment remains an important means to stabilize growth in 2024, and it is expected that the growth rate of fixed asset investment will rise to 4.9% in 2024. The drag from real estate investment in 2024 will decrease, with the decline narrowing to -3%, while infrastructure and manufacturing investment will maintain high growth, respectively maintaining high growth rates of 8.5% and 6.6%.
The "China Economic and Financial Outlook Report" released by the Research Institute of the Bank of China estimates that infrastructure and manufacturing investment are expected to grow rapidly in 2024. It is expected that the growth rate of fixed asset investment in 2024 will be around 4.5%, and real estate development investment will decrease by about 7%.Luo Zhiheng believes that to resolve the real estate risks in 2024, there are several key measures to take: First, to ensure the delivery of housing, it is necessary to strengthen the supervision of pre-sale funds of real estate companies to prevent unfinished housing and to protect the legal rights and interests of homebuyers. Second, to prevent healthy real estate companies from experiencing liquidity issues, it is important to treat all types of real estate enterprises equally and meet their reasonable financing needs. Currently, financial institutions are cautious in lending to ensure the safety of funds, leading to difficulties in financing for private real estate companies. Third, to boost residents' confidence and demand for purchasing homes, policies should be tailored to different cities and use policy tools effectively to better support the demand for rigid and improved housing needs. Fourth, to accelerate the construction of "three major projects" such as affordable housing, urban village renovation, and "dual-use" public infrastructure, which can both offset the decline in real estate investment and improve residents' living conditions.
What will be the driving force for economic recovery in 2024?
Luo Zhiheng thinks that the driving forces for economic recovery in 2024 mainly come from six aspects. First, offline service industries that involve gatherings will continue to fill the supply and demand gaps caused by the previous impact of the pandemic. Second, infrastructure investment will continue to play a role, with the issuance of 1 trillion yuan in government bonds at the end of 2023, a possible deficit rate of over 3% in 2024, and policy-based financial instruments all providing support. Third, high-end manufacturing will maintain high growth, benefiting from industrial upgrading, industrial security needs, and key support from financial resources. Fourth, the drag from real estate will diminish, as the market has undergone adjustments for nearly three years and stable real estate policies have been continuously implemented, leading to a narrowing of the decline in real estate sales and investment, with urban village renovation and other major projects also playing a promotional role. Fifth, export growth is expected to turn slightly positive, as American manufacturers and wholesalers will start a restocking cycle, boosting China's exports of intermediate goods, capital goods, and consumer goods. Sixth, the resonance of the restocking cycles between China and the US will help to accelerate production and investment in industrial enterprises.
Guan Tao, the Global Chief Economist at BOC Securities, also believes that there are some favorable conditions for China's economy in 2024. On one hand, fiscal policy may become more proactive, with the market widely expecting that next year's fiscal deficit rate may be around 4%, and at least not strictly adhering to the 3% red line. On the other hand, there is still room for monetary policy, whether in terms of quantitative or price tools, depending on the tolerance for exchange rate fluctuations. In addition, through structural reforms in the financial supply side, the transmission channels of monetary policy can be further improved.
The Central Economic Work Conference at the end of 2023 proposed "issuing more policies that are conducive to stabilizing expectations, growth, and employment," which is different from the previous "stabilizing growth, employment, and prices." Stabilizing expectations has replaced stabilizing prices in the "three stabilizations" sequence and has taken the lead over stabilizing employment and growth.
Several experts interviewed by "Caijing" believe that boosting confidence and stabilizing expectations will be the top priority for China's economic work in 2024, especially in boosting the confidence of private enterprises. A series of measures were introduced in 2023 to boost the confidence of private enterprises, but the confidence of private enterprises is still insufficient. In 2024, it is necessary to delve into the core reasons for the low confidence of private enterprises and introduce more targeted and forceful measures to boost their confidence.