No sugarcoating
There’s no point sugarcoating it – China’s economy underperformed in 2023.
Per data released by the stats bureau (NBS) on Wednesday:
- Real GDP officially expanded by 5.2% y/y in Q4 2023, up from 4.9% in Q3.
- Growth for the whole of 2023 also clocked in at 5.2% y/y, surpassing Beijing’s growth target of “around 5%.”
Considering this growth was off a very low base, it’s not a stellar performance.
- In 2022 the economy grew by a measly 3%, the second-lowest growth rate on record.
What's more, sequential growth actually tailed off in the last three months of the year.
- Seasonally-adjusted real GDP grew just 1% q/q in Q4 2023, down from 1.5% growth in the third quarter.
Looking under the hood, retail sales proved to be a main driver of the annual GDP expansion, increasing by 7.2% in 2023.
- Promisingly, growth in retail sales outstripped that of industrial value-added (IVA), which increased by 4.3% last year.
However, rather than an ongoing shift toward consumption-led growth, this looks more like a reversal of the previous year’s growth divergence.
- IVA grew 3.6% in 2022, while retail sales shrunk 0.2%.
Total fixed asset investment (FAI) in 2023 grew a paltry 3%, dragged down by the real estate sector.
- Real estate investment fell 9.6% over the past twelve months.
With property on the decline, Beijing channeled investment into areas of strategic importance. Throughout 2023, FAI in:
- Automobile manufacturing grew 17.9%
- Machinery and equipment manufacturing increased 34.6%
- Special manufacturing – a term that encompasses high-tech and advanced manufacturing techniques – rose 10.4%
Excluding real estate, private FAI for 2023 was up 9.2% over 2022 levels.
Get smart: The economy's two bright-ish spots – industrial output and non-property investment – cannot sustainably drive growth without an improvement in either domestic consumption or exports.
- With a mixed outlook for exports, policymakers must engineer a sustained rebound in domestic consumption in 2024 to keep the economic trajectory improving.
- So far, they have shown little propensity to do so.