China’s economy displayed a strong rebound since December 2022, with an average annual growth rate of 5.5% in the first half (H1) of 2023. However, the current economic landscape presents challenges that defy expectations of a robust post-COVID-19 recovery. Stagnant consumer prices and a continuous decline in the producer price index indicate sluggish demand conditions, posing obstacles to a sustained growth. As a result, growth rates are projected to reach 4.7% in Q3 2023 and 5.2% in Q4 2023, forecasts GlobalData, a leading data and analytics company.

The Chinese economy witnessed a deceleration in investment, as evidenced by a decline in foreign companies’ investment, reaching an 18-year low in the second half (H2) of 2022. Additionally, exports contracted significantly, with a sharp 12.4% decline in June 2023, marking the steepest drop since February 2020.

The real estate sector also witnessed a decline, with new housing projects experiencing a 7.2% fall in investment during the first five months of 2023. The unemployment rate among young people has remained persistently high, exceeding 20% from April to June 2023, reaching an all-time high of 21.3% in June 2023.

Ramnivas Mundada, Director of Companies and Economic Research at GlobalData, comments: “Decelerating economic indicators resulted in lacklustre demand conditions in the Chinese economy, with visible repercussions on prices. In June 2023, consumer price inflation (CPI) remained stagnant at 0%, while producer price inflation (PPI) stood at -5.4%. These figures raise concerns about the economic recovery process in China. Policymakers are particularly worried about the potential deflationary impact, as declining prices can discourage consumer spending through further deflation expectations and hinder overall economic activity.”

To tackle these challenges, China’s central bank has taken steps to combat the risk of economic slowdown. Key interest rates have been lowered, demonstrating a proactive approach to promote economic activity and ensure stability.

China’s cabinet met in June 2023 to discuss economic challenges and proposed measures, including increased financing for tech companies and regulations for private funds. Despite ongoing economic recovery, global trade, investment, and property market slowdowns have impacted China’s progress, prompting cautious policymaking and central bank actions.

Mundada concludes: “The effectiveness of these government measures remains uncertain, and policymakers are mindful of the potential risks associated with mounting debt. As a result, China may exercise caution in implementing large-scale stimulus packages to revive the economy, considering the high levels of debt.”