[Beijing Diary] China's 2023 Economic Report Card

Published 14 Jan.2024 08:00(KST)

Last year, the report card on China's economy is being released one after another. Although the gross domestic product (GDP) growth rate, which is the most closely watched indicator both domestically and internationally, has not yet been compiled, the consumer price index (CPI) reflecting the domestic real economy and the trade balance reflecting external demand showed somewhat worrisome levels.

China's CPI barely avoided stagnation, rising only 0.2% compared to 2022, while the producer price index (PPI) fell by 3%, marking the lowest levels since 2010 and 2016, respectively. In particular, the CPI recorded negative growth for three consecutive months (-0.2%, -0.5%, -0.3%) since last October, the longest continuous decline since October 2009. This is far below the government's initial CPI target of 3%. In fact, this signals the most severe domestic demand weakening and deflation (price decline amid economic recession) warning since President Xi Jinping took office as the top leader.

[Image source=AFP Yonhap News]

Exports, which support China's economy, also underperformed. Last year, China's annual export value was $3.38 trillion (approximately 4441.996 trillion KRW), down 4.6% from the previous year, and imports were $2.5568 trillion, a 5.5% decrease. The annual trade surplus was $823.2 billion, down from $877.6 billion in 2022.

However, local media were quick to highlight that the December indicators improved somewhat compared to the previous month, offering positive outlooks on consumer sentiment and trade balance. These outlets noted that the decline in prices in December (-0.3%) was less severe than in November (-0.5%), and exports increased by 2.3% during the same period, exceeding the forecast of 1.7%.

All eyes are on the 17th. As scheduled, China's Q4 GDP growth rate and the last industrial production, retail sales, and unemployment rate statistics for last year will be released all at once on that day. Within China, it is expected that the annual growth rate will comfortably achieve the target of around 5.0%. This is not significantly different from the International Monetary Fund (IMF)'s forecast of 5.4%, the Organisation for Economic Co-operation and Development (OECD)'s 5.2%, and the World Bank (WB)'s 5.1% projections.

This year's growth target, which will provide insight into the Chinese government's policy direction and intensity, is scheduled to be announced during the National People's Congress and the Chinese People's Political Consultative Conference (the "Two Sessions") in March. For the top leadership, who must find solutions to deep-rooted problems such as the real estate market slump, weak domestic demand, and local government debt, the "achievement of the target" report card may not be entirely satisfying.

However, the last report card that China most wants to hide is expected to be released on the 18th. On that day, China's foreign direct investment (FDI) for last year will be announced. Based on January to November last year, FDI amounted to 1.04033 trillion yuan (approximately 190.682 trillion KRW), a sharp 10% decline compared to the previous year. The Ministry of Commerce of China only discloses cumulative FDI figures and does not release monthly data, but Bloomberg estimates that new foreign capital utilized in November was 53.3 billion yuan, a 19.5% plunge from the previous year. This is the lowest level since February 2020 (about 46.8 billion yuan), the early phase of the COVID-19 outbreak. This report card, coupled with China's falling prices, will be the biggest concern for the leadership.