A flurry of economic indicators released by the Chinese government on Wednesday paints a picture of an economy that is still struggling to find its footing in the wake of the COVID-19 pandemic, even though it exceeded the modest growth target set by the central government.
According to the National Bureau of Statistics, the Chinese economy grew 5.2% in 2023. But with that news came evidence the country is still suffering from persistent deflation, an ongoing crisis in its real estate market, high youth unemployment and long-term population decline.
The economic data was released just days after a report revealed that China’s exports had decreased by 4.6% in 2023, the first year-on-year decline since 2016.
The government attempted to put a positive spin on the data, reporting that “the national economy witnessed the momentum of recovery, supply and demand improved steadily, transformation and upgrades were advanced solidly, employment and prices were generally stable, people’s well-being was robustly and effectively guaranteed, steady progress was made in pursuing high-quality development, and major expected targets were well achieved.”
However, financial markets were not convinced. Major stock indices tracking Chinese firms plummeted on Wednesday, with the Hang Seng China Enterprises Index shedding nearly 4%. The index is down 11% since the end of 2023 and 27% year-over-year.
Low target
The day before the release of the data, Chinese Premier Li Qiang used remarks at the World Economic Forum in Davos, Switzerland, to announce that the government’s growth target of about 5% had been exceeded in 2023. However, experts told VOA that the government had made the bar very easy to clear.
“That was a low target to begin with,” Tianlei Huang, a research fellow and China program coordinator at the Peterson Institute for International Economics, told VOA. As recently as 2021, he noted, the country’s economy was growing at above 8%.
Economists believe China will have difficulty sustaining 2023’s level of growth this year. The World Bank’s latest projection, for example, has Chinese economic growth slowing to 4.5% in 2024.
There were some encouraging signs, Huang said. For example, per capita household spending on goods and services grew at a rate higher than household disposable income, suggesting increased demand.
Huang said there also is evidence suggesting that despite the government’s insistence the country is making strong economic progress, Chinese consumers are not confident about the future. He said that sentiment was made clear by the rising rate of money being placed in relatively low-yield bank savings accounts.
“This is especially puzzling, because depository [interest] rates in China are declining,” Huang said. “So, they're putting more money in bank savings accounts for lower returns. That reflects the fact that households are still concerned and are worried about their jobs and income in the future.”
Deflation continues
The data released Wednesday showed that in December, for the third consecutive month, consumer prices fell in China. This was despite an interest rate reduction by the People’s Bank of China, which was intended to spur consumption and drive up prices.
While it may seem like a positive development for consumers, persistent deflation can be very damaging economically, as it reduces the incentive businesses have to produce more goods and services. That in turn has negative follow-on effects on economic growth and employment levels.
The Chinese government has sent some mixed signals about whether and how it will provide economic stimulus to help increase demand and push back on price deflation. On Tuesday, Bloomberg reported that Chinese leaders are weighing the possibility of issuing bonds worth 1 trillion yuan, or about $139 billion, as additional stimulus.
Real estate woes
The property market in China continues to struggle, with a number of large development companies in significant financial distress and real property prices plummeting.
In the past year, several major property development firms have fallen behind on bond payments and in some cases, have gone into default. In many instances, customers who had prepaid for apartments saw construction projects halted with no indication of when they would be restarted. The crisis has made ordinary Chinese much more reluctant to invest in real estate, and that reluctance has also been obvious in the commercial property sector.
Year-on-year, investment in real estate development declined by 9.6%. Total square meters of commercial real estate sold declined by 8.5%, while the total monetary value of commercial real estate transactions fell by 6.5%.
New unemployment figures
Earlier this year, after the Chinese government reported that unemployment rates among young Chinese had soared to more than 21% in June, Beijing discontinued its disclosure of the data. At the time, the government said it needed to improve its data collection and measurement practices.
Youth unemployment numbers reappeared in Wednesday’s report and were markedly lower than they had been six months previously, at 14.9%.
At least part of the decline was driven by the kind of data the government now chooses to track. In the past, students who were seeking part-time work but were unable to find it were counted among the unemployed. Now, only individuals not attending school, or those who have already graduated, are counted as unemployed.
Population decline
Hovering over China’s near-term economic travails is a demographic trend that threatens the country’s long-term economic future: depopulation. For the first time in a generation, China’s population declined in 2022, and recent data indicates the trend continued in 2023.
China’s population fell by 2.09 million people last year to 1.41 billion. The country recorded only 9 million births in 2023, which were more than offset by 11.1 million deaths. The birth rate was down 500,000 from the previous year, continuing a multiyear trend.
From the 1980s to 2015, the Chinese government had a one-child policy meant to limit the number of children an individual family could have. There was a brief uptick in births in 2016, when the one-child policy was eliminated. But birthrates quickly plummeted and are now at historic lows — even lower than in the early 1960s, when a devastating famine gripped the country.
So far at least, efforts by the Communist Party to encourage women to have more children have been unsuccessful. Demographers estimate that in order for a population to remain stable, women must have an average of 2.1 children each. China’s current birthrate is less than half of the so-called “replacement rate,” and shows little sign of increasing in the immediate future.
