By Edward Tse

Founder & CEO, Gao Feng Advisory

2023-2-2

Economic performance metrics during the Chinese Spring Festival have just come out. During the week-long holiday, around 308 million passenger trips across China and domestic tourism revenue reached 375.84 billion Chinese yuan ($55.63 billion). Box office revenue reached 6.75 billion yuan ($996.1 million), and sales revenue of consumption-related sectors rose 12.2 percent from last year's Spring Festival holiday. 

In mid-January, the Chinese government released GDP growth targets by province for 2023. These growth goals are less ambitious than 2022 because of the COVID effects and the property slowdown, though boosting consumption is the common theme for individual localities. Many provinces have projected more than a 5-percent increase in GDP this year with southern island province Hainan expecting to reach the highest growth of 9.5 percent.

These are all positive signals so far. But how will China's economy perform this year?

The United Nations released the report "World Economic Situation and Prospects 2023" on January 25, which projects global economic growth to decelerate from 3 percent in 2022 to 1.9 percent this year. However, the report has projected that China's GDP growth will be driven by regional economic growth in 2023. 

The report predicts that China's GDP growth will accelerate and reach 4.8 percent in 2023. Domestic consumer demand will rise as the Chinese government optimizes its anti-epidemic policies and adopts favorable economic measures. 

The report also points out that the world economy suffered many negative impacts in 2022 due to COVID-19, the Russia-Ukraine conflict, and high inflation. The global economy will continue under pressure, and the report forecasts that the European Union's economy will grow by 0.2 percent, the United States by 0.4 percent, and Japan by 1.5 percent in 2023.

Meanwhile, the IMF has raised its forecast for China's 2023 GDP to 5.2 percent after a COVID-battered 2022, and other major institutions such as the World Bank and Amir Investment banks have come up with similar analyses. Generally, as China effectively controlled the pandemic and the Spring Festival has shown a sound rebound, the level of confidence in China's economy has increased.

On December 5, I published an article in China Daily on my prediction for China's economy for 2023 in which I painted two scenarios, which are still held. 

In the more conservative scenario, the Russia-Ukraine conflict continues and the West's antagonism toward China leads to some decoupling. China's GDP growth would probably be less than 5 percent in 2023 and could be even worse if some drastically negative events take place.

A more positive scenario on the other hand will be driven by relaxations in COVID prevention and control measures and continued opening-up of the Chinese economy to the rest of the world. The dual circulation paradigm will function well, consumption will increase, the property sector will have a smooth landing, and China's GDP growth will exceed 5 percent in 2023. 

During the 20th National Congress of the Communist Party of China, Chinese President Xi Jinping announced that "Chinese modernization" would be the framework for driving China's development forward. Its main theme is that China needs to develop its economy in alignment with the goal of common prosperity and pursue socialistic modernization.

He also underscored China's emphasis on the digital economy, i.e., Internet companies and private sector companies in general. And he pledged China's continued opening up to the rest of the world.

In his speech at the World Economic Forum in Davos, Vice Premier Liu He also indicated the pursuit of similar themes. He was quite explicit when he said, "Some people say China will go for a planned economy. That's by no means possible. We will deepen state-owned enterprises reform, support the private sector, and promote fair competition, anti-monopoly and entrepreneurship."

China's "dual circulation" economic policy is beginning to manifest its effectiveness. The "internal circulation" of domestic supply and demand is beginning to gather momentum as consumption has started rising.  

"External circulation" is also showing a strong growing trend as China's trade with many other nations has continued to be vibrant. China's annual foreign trade value hit a record high again in 2022. According to the General Administration of Customs, total goods trade reached 42.07 trillion Chinese yuan ($6.27 trillion), up 7.7 percent year-on-year, the highest in the world for the sixth consecutive year.

While geopolitics are affecting how certain industries, especially those in tech areas, are developing, foreign companies' investments in China have been increasing. For many Western multinational companies, China is becoming an increasingly important market and a lynchpin for their global business and innovations.

The Year of the Rabbit should be the year when China's economy would experience a sound rebound, barring the occurrence of some huge "Black Swan" events. China should also be contributing to a large proportion of the world's economic growth this year.