China’s economy is expected to rebound in 2023, with two key factors underpinning the country’s economic recovery. Firstly, the optimization of COVID-19 management measures and secondly, substantial policy adjustment for the real estate industry. The peak of the pandemic towards the end of 2022 laid the foundation for China’s economic recovery, and thanks to the policy adjustment for real estate launched in November, there is expected to be no significant decline in the property market but rather a partial recovery.
It is realistic to forecast that China’s economic growth will be about 5 percent in 2023. However, there are still many risks and challenges facing the country’s recovery, with the potential for second and third waves of COVID-19 infections being one of them. Although the impact of future outbreaks may be much smaller than that experienced in January 2023, the impact on the economy could still be significant.
Furthermore, while there is expected to be a consumption rebound, prudence is advisable. This year will certainly witness so-called revenge buying, but it is unlikely that consumption growth will reach or exceed 10 percent. There are several factors undermining this year’s consumption rebound expectations. The pandemic has taken a heavy toll on some, with plummeting household incomes and savings being experienced over the past three years, especially for those engaged in the tourism, transportation, and catering industries. The slowdown in China’s real estate industry has also impacted household budgets, with the contraction of the industry in the past few years being the worst in two or three decades. Housing prices in many regions of the country have fallen, and this has had a relatively substantial impact on many household finances.
China’s unemployment rate is relatively high, particularly among young people, and while it is expected to improve this year, it is not likely to recover very quickly. The situation in China is different from countries like the United States, as Chinese households’ excess savings do not come primarily from government spending. In the past few years, a large portion of China’s fiscal expenditure has been spent on nucleic acid testing and other COVID-related projects, which have little positive impact on household savings and finances.
In conclusion, while there are many risks and challenges facing China’s economic recovery, there are still reasons to be optimistic. A quick property rebound is very important if there is hope for rapid economic growth, and local governments must achieve a new equilibrium in finance to shift away from high dependence on revenue generated from land grant premiums and land taxes. Overall, a cautious approach is advisable to ensure a sustainable economic recovery.