hina’s economic growth rate in 2022 dropped to 3 percent. Not only was the figure far below the 5.5 percent target set by the Chinese government in early 2022, it was the lowest for 40 years. But after China dropped its zero-Covid policy and reopened its economy, a growth rate of 5 percent will be within reach in 2023.
By the end of January, all 31 provinces and municipalities in the Chinese mainland had released their annual growth targets for 2023, all of which are set at or above 5 percent. It is widely expected that the central government will set its annual GDP growth target at 5 percent at the coming session of the National People’s Congress due to be held in March.
There are several factors that support such an optimistic growth scenario.
First, compared to other Asian countries, where it took about half a year for major economic indicators to reach pre-Covid growth levels after dropping pandemic restrictions, China’s policy shift appears swifter, which will lead to a faster recovery. For example, the non-manufacturing business activity index was 54.4 percent in January, an increase of 12.8 percentage points from the previous month. We can expect China’s economic activities will reach pre-Covid levels as early as early March.
Second, domestic consumption, the major driving force of China’s economic growth in recent years, is expected to bounce back quickly in 2023. In January, the non-manufacturing sector new orders index was 52.5 percent, a sharp jump of 13.4 percent from the previous month. The index of new orders in the service industry, another major indicator of consumption, was 51.6 percent, an increase of 14.2 percentage points from the previous month. Boosting domestic consumption is a major policy focus of the government, which has pledged to increase public spending and issue free shopping vouchers to boost demand.
Third, after the government issued policies in late 2022 aimed at stabilizing the real estate market, which has suffered major blows in the past couple of years, business activity in the infrastructure sector has bounced back. In January, the business activity index of the construction industry was 56.4 percent, an increase of 2.0 percentage points from the previous month, while the new orders index in the construction industry was 57.4 percent, an increase of 8.6 percentage points. The real estate industry will not be as problematic in 2023 as it was in 2022.
The major risk for China’s economic growth in 2023 is the slowdown of the export sector. In the three years of the pandemic, disrupted global supply chains led to strong demand for Chinese products and China’s strong export sector was a major pillar of the country’s economic stability. In 2022, the net exports of goods and services contributed to 17 percent of China’s GDP growth.
But as the global economy gradually recovers from the pandemic, China’s export sector has come under pressure. In December 2022, the total volume of exports declined from the previous month. As the risk of economic recession looms in North America and Europe against a backdrop of interest rate hikes, which makes the US dollar stronger, the export sector could experience a contraction in 2023.
But taking everything into consideration, after China switched its policy focus back to economic growth, a 5 percent growth in GDP is well within reach.
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