Commentary on Political Economy

Wednesday 7 February 2024


Joseph Leahy · Feb 8, 2024

The Chinese economy grew 5.2 per cent last year, according to official statistics. But for many in business it probably did not feel like that, from the evidence on the streets of Beijing and other large cities.

Restaurants were not busy, shops were vacant, and there were widespread reports of property prices falling more than the official numbers. Rhodium Group, a research company, argued in December that most economic indicators in 2023 suggested growth was more like 1.5 per cent. There were bright spots, it said, such as electric vehicle production, but these could not offset the “general malaise”.

For business, the divide between such estimates and official data on how fast the second-largest economy can grow this year and beyond has become an important issue for their expansion plans. An annual survey by the American Chamber of Commerce in China of its members found that just over half were planning to increase their investments in the country this year, a little up from last year. For slightly more than a quarter of this group, expectations of faster economic growth in 2024 were an important factor.

The question of measuring that growth is becoming increasingly politicised, however, as Beijing seeks to steer the narrative away from criticisms that its growth model is overly dependent on state-driven investment rather than consumption.

In its annual report on China last week, the IMF said the country’s post-pandemic recovery last year was “subdued” as property and weak exports and investment weighed on growth. It also forecast slower growth in 2024.

This provoked an indignant response from Chinese officials. IMF staff should provide a “more appropriate forecast” to help China “stabilise” confidence “at home and abroad”, said a statement from Zhengxin Zhang, China IMF executive director, that accompanied the IMF’s report.

Who is right? At 5.2 per cent year on year, Beijing’s official 2023 gross domestic growth figure is the lowest in decades, excluding the pandemic years of 2020 and 2022. But it is still sizeable for an economy of China’s heft and sophistication.

The issue for China, though, is that the rebound might have been expected to be more robust from 2022 — a year when Covid lockdowns and rigid travel restrictions hit service industries and supply chains and deepened the slowdown in the property sector.

While growth was strong in the first quarter of 2023, it required increasing government support as the year wore on. Consumption, boosted by the release of pent-up demand from lockdowns, made up most of the growth in 2023. However, consumer confidence remained well below pre-pandemic levels towards the end of the year, the IMF said. It estimated that net foreign direct investment also declined from 2022. Lower business and market confidence was reflected in capital markets. China’s CSI 300 stock index has lost 5.5 per cent this year, compounding falls in 2023. The benchmark is down 45 per cent from 2021 highs. And the AmCham China survey showed that while the profitability of its members improved from 2022, most companies were breaking even or lossmaking, further suggesting less than robust growth.

Beijing insists that everything is going to plan. Yet domestically, it has cracked down on dissenting opinions about the economy, deepening scepticism about the accuracy of official data.

Some economists believe that when calculating real GDP growth from nominal data, Beijing is able to adjust the deflator, the broadest measure of prices in the economy, to hit its targets.

“Some estimates suggest that official Chinese data overstate its GDP by around 20 per cent,” Oxford Economics wrote in December.

For 2024, the IMF is forecasting 4.6 per cent growth and then about 3.5 per cent by 2028 on “weak productivity and ageing”. These forecasts are broadly in line with market expectations. Oxford Economics is predicting growth to fall to about 3.5 per cent by 2030 and just 2 per cent by 2040, possibly delaying the day that China’s economy will converge with the US in terms of size.

China’s Zhang responded that the country still has many growth drivers: the population is getting older but more educated, urbanisation has more room to grow, and Beijing is investing in science and technology. “China will continue to be the vital engine of global economic growth,” insisted Zhang. Global boardrooms are hoping he is right. But the bar is rising for China to prove it.

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