hina’s economy grew by 5.5 percent in the first half of the year, with the second quarter growth rate accelerating to 6.3 percent, faster than the 4.5 percent growth rate in the first quarter. While the rate of economic expansion fell short of more optimistic market expectations at the beginning of the year, it is well above the annual growth target of 5 percent set by the Chinese government.
Despite this, in the past months, observers have become increasingly concerned over China’s post-pandemic economic recovery as the country faces challenges such as a struggling real estate sector, sluggish consumer spending, faltering private investment and record youth unemployment.
The data showed mixed results on China’s latest measures to boost consumption. In the first six months of the year, total retail sales reached 22.76 trillion yuan (US$3.18t), an 8.2 percent year-on-year increase. But on a monthly basis, consumption in the last two months fell off after peaking in April, indicating that the impact of the stimulus measures is fading.
On the positive side, consumption accounted for 65 percent of per capita disposable income in the first half of the year, lower than the pre-Covid era, but much better than 2020 and 2022. In the meantime, as per capita disposable income increased by 5.8 percent in the second quarter, up from 3.8 percent in the first quarter and higher than the overall GDP growth rate, economists believe that consumer spending could still pick up in the second half of 2023.
In the first half, the ratio of private investment in total fixed asset investment dropped to 52.9 percent, a historic low. However, private investment in the manufacturing sector remained robust, accounting for 94.7 percent of all investment in the sector in the first five months, 7.6 percent higher than the same period of 2019. Total fixed asset investment reached 24.3 trillion yuan (US$3.38t), an increase of 3.8 percent on the same period in 2022.
In line with expectations, China’s property market continues to see a decline in overall investment, a decrease of 7.9 percent year-on-year. Overall sales of commercial housing declined by 5.3 percent by floor area from the same period of last year, and total sales revenue of commercial housing grew by only 1.1 percent year-on-year. Observers believe the struggling property market will continue to be a major risk factor for China’s economic growth.
As for the trade sector, in the first half of 2023, total foreign trade increased by 2.1 percent to reach 20.1 trillion yuan (US$2.8t). Exports increased by 3.7 percent year-on-year, while imports decreased by 0.1 percent. But as demand in key overseas markets, especially the US and Europe, has been steadily declining, there are signs that the export sector could shrink further in the second half of the year, posing a major threat to China’s economic growth. In June, China’s exports already recorded a decrease of 8.3 percent from the same period of 2022.
These figures show a strong but worse-than-expected recovery in the past six months. While the fundamentals of the Chinese economy remain robust, it faces multiple challenges in all three pillars, consumption, investment and exports. But as the Chinese government has adopted a prudent approach to fiscal and monetary stimulus, there is still room for more aggressive and expansive measures to boost the economy in the second half of the year.