Stable growth is key government objective for China in 2023

At China’s Central Economic Work Conference, delegates concluded that reviving the Covid-19-hit economy and boosting GDP growth will be a major task in the year ahead.

Supporting economic recovery by expanding domestic demand and boosting market confidence will be key priorities for China in 2023, the government has pledged.

China’s government is determined to normalize the country’s economic activity and minimize the impact of the pandemic on people’s lives by prioritizing the stabilization of growth, employment and inflation, leading economists said.

“The country will see a notable economic rebound next year amid a sluggish global economy, while the resumption of life and production order will accelerate in the first half of 2023,” said Han Wenxiu, an official with the Central Committee for Financial and Economic Affairs.

“China’s economy is still highly resilient and has great potential and vitality, and the economic fundamentals that will sustain long-term growth remain unchanged,” Han said.

Many economists have upgraded their projections for China’s growth next year and said it is possible for the country to achieve a substantial improvement in its GDP growth rate in 2023, given the strong policies to revive the economy, intensified policy support and a low comparison base this year.

While the economy will likely to suffer more disruption because of ongoing Covid-19 outbreaks, economic recovery is expected to accelerate in the second quarter of next year if the ongoing Covid wave peaks in the first quarter.

An uptick in consumption will be a main growth driver in 2023 as the top leadership has pledged to revive consumption and spur domestic demand, especially in property upgrading, electric vehicles and elderly-care services, according to analysts.

“We think the government may extend some supportive measures for consumption in 2023, enhance support for employment, especially among young people and college graduates, and boost household income growth. After the Covid wave likely peaks in the first quarter of next year, we expect household consumption to rebound notably,” said Wang Tao, head of Asia economics at UBS Investment Bank.

While consumer confidence may be muted in the short term, Zhou Maohua, an analyst at China Everbright Bank, said: “The Covid-19 containment measures will give a strong boost to the recovery of domestic demand next year.” He said he expected to see “a gradual normalization of activities and accelerated resumption of work and production in business and services such as catering, tourism and retail”.

A rebound of consumption in the private sector will aid the recovery of China’s imports of consumer goods, raw materials and resources, benefiting China’s major trading partners, Shan Hui, chief China economist at US investment bank Goldman Sachs.

Meanwhile, recovery in the property sector is also key to the improvement of China’s economy, as policymakers at the Central Economic Work Conference called for support for the sector by fulfilling developers’ reasonable financing demand, effectively mitigating risks related to top developers and improving their balance sheets, economists said.

Han Wenxiu said that preventing and resolving risks in the property market is one of the government’s top priorities, as the property sector accounts for about 7% of China’s GDP, while revenue from land sales and property-related taxes account for nearly half of local governments’ income.

Li Qilin, chief economist at Shanghai-listed Hongta Securities, said: “It is crucial for the supportive policies to effectively spur demand in the housing market including people’s demand for property upgrading, which in turn could help improve the cash flow of property companies.”

And Luo Zhiheng, chief economist at Yuekai Securities, said that the policymakers have pledged to maintain the necessary intensity of fiscal spending, meaning that the government will maintain a relatively large-scale budget deficit and a certain volume of special bonds by local governments in order to support growth.