The struggling Chinese economy has received another jolt after the annual exports reported a fall of around 5 percent in 2023– which is the lowest since 2016.[1] Property crisis, lower manufacturing, and high unemployment rate have posed challenges to China’s economy. All this does not sound well for the Chinese economy which the International Monetary Fund (IMF) said is going to witness a slowdown for the next four years.
The exports in 2022 were worth USD 3,554 billion, which declined to USD 3,380 in 2023.[2] China is no longer the top exporter to the US as its share reduced to 13.9 percent in 2023 from 21 percent in 2017.[3] About 180 million Chinese people are dependent on export-related activities for their livelihood.[4] “Exports conditions remain fragile,” said Ding Shuang, chief economist at Standard Chartered. The Asian power is already facing a variety of domestic challenges such as an aging population, rising unemployment, and property crisis.
IMF said China’s economic growth will continue to lose steam, dropping as low as 3.4 percent in 2028.[5] The World Bank has already cut down the growth rate for China in 2024 to 4.5 percent.[6] Financial research firm Rhodium Group said “The structural issues left unaddressed in 2023 will continue to drag down China’s potential growth.”[7]
IMF also raised concerns over the worsening property crisis in China, predicting a fall in real investment by 30 to 60 percent.[8] “Absent a comprehensive restructuring policy package for the troubled property sector, real estate investment could drop more than expected, and for longer, with negative implications for domestic growth and trading partners,” it said.[9]
Manufacturing purchasing managers’ index (PMI) continued to fall for the last three months of 2023 due to an “increasingly complicated, tough and uncertain” external environment, said China’s National Bureau of Statistics (NBS). “A reduction in overseas orders as well as insufficient demand from the domestic market are the major difficulties, as some companies complained in our survey,” said Zhao Qinghe, a statistician at NBS. The shrinking PMI indicated the poor business sentiment among larger factory operators.
In January, the PMI released by the NBS showed a little improvement in the Chinese economy though it still did not improve confidence. “Overall, the PMI data shows that China’s economy remains relatively soft, as confidence remains weak. Until forward-looking indicators such as new orders return to expansion, economic momentum is likely to remain tepid,” said Lynn Song, Chief Economist at ING, a financial services corporation.[10]
Notably, another PMI computed by Caixin/S&P Global services showed a decline in January as well.[11] The little improvement in NBS’ PMI may have been caused by to temporary increase in demand due to the Lunar New Year Celebrations in February. Industrial profits at China’s industrial firms reduced by 2.3 percent in 2023 due to sluggish demand and property crisis.[12] However, the overall activities appear to remain flat. “There is no signal of a turning point here,” said Galvin Chia, an emerging market strategist at Singapore-based NatWest Markets. “The surprises are too small to change what is already a very entrenched bearish view on the outlook.”[13]
Some global analysis firms pointed out inappropriate and insufficient monetary and fiscal measures taken by the Beijing government for the sluggish growth. “That weak credit growth paints a clear picture that monetary easing up to now has failed to turn around business and consumer confidence,” Moody’s Analytics said in its latest report.[14]
Chang Shu and Eric Zhu, Hong Kong-based economists at Bloomberg Economics, echoed similar views and expressed doubts over Beijing’s growth target of 5 percent in 2024. “The details showed demand made only a limited pickup. And even that was mostly driven by external demand. Domestic demand still appears to be struggling despite a range of stimulus measures having been rolled out since the second half of 2023. The message in these data — more support is needed,” they said.[15]
[1] https://www.cnbc.com/2024/01/12/china-posts-higher-than-expected-exports-growth-in-december.html
[2] https://www.statista.com/statistics/263661/export-of-goods-from-china/
[3] https://asia.nikkei.com/Economy/Trade/China-set-to-lose-crown-as-top-U.S.-exporter-after-17-years
[4] https://www.thedailystar.net/business/news/chinas-tumbling-prices-push-some-exporters-the-brink-3536656
[5] https://www.voanews.com/a/imf-predicts-china-economy-slowing-over-next-four-years/7468960.html
[6] https://asia.nikkei.com/Economy/Trade/China-s-annual-exports-drop-for-first-time-in-seven-years
[7] https://www.scmp.com/economy/economic-indicators/article/3246790/chinas-manufacturing-pmi-falls-third-month-row-highlighting-challenges-worlds-second-biggest-economy
[8] https://www.voanews.com/a/imf-predicts-china-economy-slowing-over-next-four-years/7468960.html
[9] https://www.imf.org/en/Publications/WEO/Issues/2024/01/30/world-economic-outlook-update-january-2024
[10] https://www.sharecast.com/news/international-economic/china-factory-activity-falls-again-in-january–16011600.html
[11] https://www.investing.com/news/economy/chinas-jan-services-activity-expands-at-slower-pace–caixin-pmi-3292138
[12] https://www.reuters.com/world/china/chinas-industrial-profits-fell-23-2023-2024-01-27/
[13] https://finance.yahoo.com/news/china-factory-activity-shrinks-growth-021320107.html
[14] https://asia.nikkei.com/Economy/China-factory-activity-shrinks-less-sharply-ahead-of-Lunar-New-Year
[15] https://finance.yahoo.com/news/china-factory-activity-shrinks-growth-021320107.html
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