Manufacturing and Real Estate Slump... When Will China's Economy Rebound?

[Asia Economy Beijing=Special Correspondent Kim Hyun-jung] Although manufacturing and real estate, the main pillars supporting the Chinese economy, are faltering, confidence in economic recovery through high-intensity stimulus measures is emerging within China this year. There are also expectations that a rebound will appear in the second quarter, supported by stable prices and concentrated support from the central government.

According to the Korea Trade-Investment Promotion Agency (KOTRA) on the 2nd, Kim Seong-ae of the Beijing Trade Center diagnosed through an analysis report on the Chinese economic outlook that China will focus on achieving a domestic demand-centered recovery this year and will show an economic rebound in the second quarter.

[Image source=Reuters Yonhap News]

Earlier, the Chinese state-run think tank, the Chinese Academy of Social Sciences, predicted that China's economic growth rate would reach 5.1% this year, and that growth momentum would recover as industrial development accelerates in areas such as the digital economy, smart manufacturing, carbon neutrality transition, and biomedicine.

Global investment banks and other overseas institutions also presented relatively optimistic forecasts. Morgan Stanley raised its growth forecast for China this year from 5% to 5.4%, Goldman Sachs from 4.5% to 5.2%, and Nomura from 4% to 4.8%. This is based on the expectation that the Chinese government’s abandonment of the "Zero-COVID" policy, which symbolized high-intensity quarantine, and the rapid transition to "With-COVID" will lead to various stimulus policies and normalization of external economic activities.

Trade Center Kim cited experts’ analyses, stating that the current COVID-19 spread in mainland China will peak around the Chinese New Year (Chunje, 春節) this year, and the Chinese economy will rebound from the second quarter. However, due to concerns about COVID-19 infections, China’s consumption growth rate is expected to find it difficult to recover to past trends for the time being. In fact, before the COVID-19 outbreak, China’s consumption recorded a growth rate of over 8%, but last year it was only 2.7%, less than half. Experts analyze that a sharp rebound in consumption is difficult amid a significant decline in income growth during the COVID-19 spread period. The disposable income growth rate of urban residents in China fell from 7.9% in 2019 before the COVID-19 spread to 3.5% in 2020, rebounded to 8.2% in 2021, but was only 4.3% in the first to ninth months of last year.

Manufacturing, a pillar of the Chinese economy, has also continued a sluggish trend. The manufacturing PMI announced earlier by the National Bureau of Statistics of China was recorded at 47.0 in December last year, down from 48.0 the previous month. This is the lowest level since February 2020, when it fell to a record low of 35.7 due to the COVID-19 spread, and is even lower than April 2020 (47.4), when Shanghai was under full lockdown. The government is also focusing on the recovery of the manufacturing sector. Recently, the Chinese State Council presented expanding manufacturing investment as a key measure in the mid- to long-term domestic demand expansion strategy plan (2022?2035).

[Image source=Reuters Yonhap News]

Weak real estate-related investment, which has increased downward pressure on the Chinese economy, is expected to gradually recover. China Xindai Securities (信達證券) forecasted that the decline in Chinese real estate investment in the fourth quarter of 2023 could narrow to around -5%, and Guotai Junan Securities offered a more optimistic outlook that real estate investment in China could turn positive in the third quarter this year due to stabilization measures and base effects.

The consumer price index (CPI) inflation rate in China, which was around 2% on a cumulative basis as of November last year, is expected to maintain a stable trend. The producer price index (PPI) inflation rate surged to 13.5% in September 2021 but fell to about 4.6% on a cumulative basis as of November last year. Trade Center Kim explained, "A sharp rebound in Chinese consumption is not expected, and the authorities will maintain price stability to ensure economic stability."

This content was produced with the assistance of AI translation services.