Last year, China’s car production set a record. Restaurants and hotels became increasingly full. Construction of new factories increased rapidly.
However, China’s economic strength hides weaknesses. Deep discounts helped boost sales of cars, especially electric cars. Diners and travelers opted for cheaper cuisine and cheaper hotels. Due to sluggish domestic demand, many factories in China are operating at less than half of their production capacity, and the company is working to expand exports to compensate for this.
China’s economy grew 5.2% last year as it recovered from nearly three years of harsh “zero coronavirus” pandemic measures, the National Bureau of Statistics said on Wednesday. During his last three months of the year, production increased at an annualized pace of 4.1%.
In the long term, China’s growth is slowing. High debt, a housing crisis that undermines confidence, and a shrinking and aging workforce are weighing down production.
Western economists predict that growth will be below 4.5% this year, but this is not the result of a cyclical recession, but rather the result of years of what economists call secular stagnation. This is the result of a rapid decline that is likely to continue. Prices have gradually fallen to levels not seen in China since the shock of the 2009 global financial crisis, a phenomenon known as deflation and the potential for bankruptcy for heavily indebted families and businesses. There is.
Former Treasury Secretary Lawrence H. Summers said, “Secular stagnation — essentially a chronic savings glut that has led to low growth, deflation, asset bubbles, and fiscal stress — has moved from the Western Hemisphere to China.” . A week in Shanghai.
Large amounts of debt and the high interest payments required are limiting China’s room for maneuver. Since the financial crisis, national and local governments have responded to the economic downturn by increasing spending on new roads and other infrastructure and increasing lending to manufacturers in lucrative industries. It stimulated growth but resulted in ever-increasing debt, especially at the local level.
Last month, credit rating agency Moody’s issued a negative outlook on the Chinese government’s financial health. Another Chicago-based agency, DBRS Morningstar, also downgraded Chinese government debt in November.
Rohini Malkani, senior vice president of sovereign debt ratings at DBRS Morningstar, said she is concerned that China’s economy’s total debt now exceeds three years’ worth of economic output, which is higher than developed countries like the United States. expressed.
Compared to the country’s fast-growing output, she said, “it has more than doubled in the past 15 years.”
Zhang Jun, dean of the economics department at Shanghai’s Fudan University, said in a commentary published by Beijing-based newsletter East is Read that the Chinese government has no desire to stimulate the economy by borrowing and spending for infrastructure. He said it was fading. As a result, he wrote, “we increasingly feel that there is a certain inevitability to slower growth.”
Last year’s economic performance was broadly in line with the consensus of 5.3% in a survey of economists conducted last week by Chinese media outlet Caixin. The government also achieved the government’s goal of a growth rate of approximately 5%, set in March last year. Last year’s growth rate was “about 5.2%,” Premier Li Qiang said Tuesday at the World Economic Forum in Davos, Switzerland.
Many investors expect China to step up its economic stimulus, but Li stressed on Tuesday that China achieved growth last year without ramping up its stimulus. After the release of the report, the Shanghai stock market fell 0.8%, and Hong Kong stocks fell 2.6%.
Kang Yi, director of the National Bureau of Statistics, said at a press conference that the national economy has shown signs of recovery, high-quality development has steadily progressed, and major expected goals have been fully achieved.
Also on Wednesday, the National Statistics Agency resumed publishing the unemployment rate for 16- to 24-year-olds, which it had stopped last summer, after the youth unemployment rate reached 21.3% in June. The rate was 14.9% in December, reflecting in part a decline in the youth unemployment rate in the winter, when last summer’s graduates find work or go on to higher education.
Kang said the agency no longer counts as unemployed many students who may look for part-time or short-term jobs while in school.
Last year’s performance marked a strong rebound from 2022, when the economy grew by just 3%. Two-month coronavirus lockdown in Shanghai in spring 2022 disrupts production across much of central China, leading to sharp decline in consumer confidence nationwide; consumer confidence is low It remained.
Many economists had predicted a strong recovery in 2023 compared to such a weak base. But after a strong start, spending began to decline. House prices have fallen, and households’ sense of financial security has declined. And the Chinese government has weakened the country’s social safety net. Among other measures, policymakers a year ago ended a broad unemployment insurance program put in place during the pandemic to encourage people to find work.
All but the wealthiest households closely monitored their spending. Many restaurateurs complained of a sharp drop in average tabs, and hotel executives were concerned that travelers were opting for cheaper rooms.
About 6,000 restaurants have closed in Shanghai during the pandemic, but another 7,500 have opened in the past year, said Chris St. Cavish, a food critic and industry analyst in China’s most populous city. It is said that he did. Almost all of the industry growth has occurred between inexpensive cafes, which cost less than $14 per person, and upscale restaurants, which cost up to $1,000 per person.
“That in-between place is a difficult place for restaurants right now,” St. Cavish said.
The biggest worries about China’s economy next year are the same as the past two years. That is what will happen if this country’s housing market crashes. Existing homes are already selling for about one-fifth of what they were at their peak in the summer of 2021, so this is the time to find buyers. The pace of trading has slowed.
The most serious impact of the real estate crisis is seen in developers struggling to raise funds to launch new projects. Investors are concerned that construction volume could drop significantly once developers finish promised apartment work in the coming months.
Tao Wang, chief China economist at Swiss bank UBS, said the long-term slump in construction activity was not over yet, but said a sharp decline in construction activity was unlikely. “There is a risk that house prices will fall further, further eroding household confidence,” he added.
China’s state-owned banking system has rapidly shifted its priorities over the past year. There is little lending to real estate developers or home buyers. Instead, loans to industrial companies to build factories surged.
The government said Wednesday that investment in manufacturing increased by 6.5% last year, but real estate development fell by 9.6%.
Much of the increased factory production is sold overseas. China’s trade surplus in manufactured goods is equivalent to about 10% of the country’s economic output. Last year’s exports decreased in dollar terms due to the sharp depreciation of the Chinese currency, but they have started to increase since November and are likely to increase further. Multinational retailers have finished selling excess inventory accumulated at the end of the pandemic and are starting to place new orders.
“China’s exports are likely to explode,” said Hayden Briscoe, senior asset management strategist at UBS.
Automobile factories are being built at a rapid pace across China. Car exports increased by 58% last year, making China the world’s largest car exporter, surpassing Japan.
The question now is how to persuade Chinese households to stop putting so much of their income into bank accounts and start spending again. “Tackling chronic savings gluts may be China’s defining macroeconomic challenge over the next decade,” Summers said.
Li Yu contributed to research.