As predicted by Allianz Trade, China’s GDP growth in 2023 reached +5.2%, surpassing the (easy) official target, but also reflecting weaknesses, including persistently low consumer confidence and a collapse in the real estate market.
In 2024, further policy easing will be necessary to restore confidence. We expect this year’s GDP growth to be +4.6%.
Emerging industrial branches and advanced production (such as new electric-powered vehicles, renewable energy, batteries, and industrial robots, to name just the best) may become more sustainable growth factors in the long term. However, they are currently not large enough, and further development will face challenges.
According to Allianz Trade’s expectations, China’s GDP growth in 2023 was +5.2%, surpassing the (easy) official target but also reflecting the weakness of the Chinese economy. The past year began with hopes of consumer-driven rebound which were quickly dashed in Q1 in the face of a further sharp downturn in the real estate sector and persistently weak confidence.
Consumer confidence did not really bounce back from the lockdown lows in 2022 (averaging 87.1 from April to November 2023, after 93.6 in Q1 2023 and 87.2 from April to December 2022), while business confidence and hiring intentions also did not invigorate (CKGSB business conditions index at 47.8 in December 2023 compared to a pre-pandemic average of 55.9, and a recruitment index at 55.2 in December 2023 compared to a pre-pandemic average of 68.1). In this context, household disposable income increased by a modest +6.1% year-on-year in real terms in 2023. Although this is higher than overall GDP growth, it is also lower than in 2021 (+8.1%) or pre-pandemic (average +6.7% from 2015-2019).
Retail sales slowed to +7.4% year-on-year in December 2023 (compared to +10.1% in the previous month) due to weakening sales of cars and household appliances (although the restaurant sector fared better). We estimate that private consumption in nominal terms was nearly -10% below its pre-pandemic trend in 2023 – roughly back to the level of the gap seen in 2020. For comparison, industrial and infrastructure investment fared better last year.
In 2024, further policy loosening will be necessary to restore confidence. We expect GDP growth to be +4.6% this year. Fiscal policy supported infrastructure investment, as local governments were given greater freedom of finance.
Allianz Trade expects that in 2024 the limit for special regional bonds will be increased to RMB 4.2 trillion (from RMB 3.8 trillion), while the central government may issue long-term special bonds worth RMB 1 trillion. A supportive monetary policy will help facilitate such issues.
New industry branches and advanced production may become more sustainable growth drivers in the long term, but they are currently not large enough, and their further development will face short-term challenges. Despite many weaknesses, 2023 was also the year in which China became the world’s largest car exporter, driven by growing global demand for electric vehicles. Other strategic sectors, such as batteries, solar panels, and industrial robots, also performed very well. Even though they are developing rapidly, these emerging branches are not yet sufficient to compensate for the collapse in the real estate market.
