Back on Track in 2023


Date: Jan 29, 2023

GDP grew 3% in 2022. Specifically, China’s economy rose by 2.9% y/y in Q4 2022, down from the 3.9% growth reported in Q3. Many negative factors affected the economy in 2022, including global macroeconomic tightening, the Ukraine crisis, real estate restructuring, the pandemic management policies and so forth. As some of the above factors abated, particularly abolishment of the zero-COVID policy, we expect that, after a turbulent 2022, the economy will be back on track in 2023.

Industrial output grew 3.6% in 2022, down 6 pps from 2021. Investment rose 5.1%, up 0.2 pps, driven mainly by state investment. Consumption fell significantly, by -0.2% y/y, from 2021, down 12.7 pps, from repeated lockdowns.

Exports rose 10.5%, down 10.5 pps from 2021. Exports’ monthly growth rates displayed a downward trend. Net exports’ contribution to GDP only accounted for 0.5 pps. Particularly in Q4, the share of exports in accounting for GDP growth is only -1.2 pps, negatively impacted by weak global demand and the dramatic change in domestic COVID policy.

Prices are instead facing deflation risk. In 2022, PPI rose 4.1% and CPI rose 2%. However, both displayed slowing trends. In December, PPI and CPI only grew -1.1% and 1.8% y/y. Monetary policy is still stable. M1 rose 3.7% y/y, down 0.9 pps. M2 increased 11.8% y/y, down 0.6 pps, partially reflecting weak money demand.

A series of government policies is being released to stabilize the real estate market, while discouraging speculation. On January 5th, the People’s Bank of China announced that it would allow banks in cities that experienced housing price declines to cut mortgage rates for first-time house buyers. This directive followed last month’s meeting by top national leaders, which typically gives guidance in line with the coming year’s main economic theme, and this year stated that housing consumption would be a significant way to expand national consumption. We believe the housing market will mildly strengthen this year, but not thrive. Positive factors are the abandoning of any pandemic restriction, the banking sector’s efforts to keep most real estate developers solvent and the already relatively low base number.