![]() Subdued business confidence is likely a factor behind weak private investment post-COVID, though falling profits and orders are also to blame. While the government has now signaled a normalization of regulations and vowed to support the private sector and internet companies, business confidence may take time and concrete reassuring measures to recover. Regulatory tightening on internet platforms, fintech companies and the after-school tutoring sector came out in a concentrated period of time a couple of years ago with little warning, leading to a sharp correction in those sectors. But the latter was also due to major shifts in long-term real estate demand and supply, and was aggravated by the pandemic and related policies. The government's property tightening measures in 2020-2021 were certainly a key trigger in the ongoing property downturn. ![]() Tao Wang's book, Making Sense of China's Economy.ĭid the government's regulatory tightening and deleveraging in the property sector in recent years play a role in the slowdown? In which case, a prolonged deep property downturn will continue to depress income and confidence of both the corporate and household sectors, as well as prices. The economy may not recover in the second half and growth would fall far short of 5% this year if the property sector does not stabilize, either because property policy is not eased significantly, or proven insufficient to halt the fall. Our baseline forecast is quarter-on-quarter growth recovering to 4-4.5% in the third and fourth quarter, resulting in annual GDP growth reaching about 5% this year (the government's target for 2023), compared to barely 3% in 2022. ![]() We expect an easing of fiscal policy with more credit support for infrastructure investment and modest easing of property policies. Tao Wang, author of Making Sense of China's EconomyĪt the Politburo meeting in late July, China's senior leadership recognized the difficulties facing the economy and vowed to roll out more supportive policies to help stabilize the economy. As a result, overall economic growth slumped in the second quarter. Against this backdrop, the industrial sector started to destock and consumption recovery slowed in the second quarter. In addition, as local governments faced financing challenges, they tightened fiscal spending, which also constrained growth. However, going into the second quarter, property recovery faltered, with sales and starts falling much further. The economy rebounded in the first quarter largely as expected, and in the case of property and exports, slightly better than expected. ![]() We expected the recovery to be driven by a rebound in consumption, led by normalization of economic activities and improvement in the labor market, and stabilization of the property sector. The consensus expectation is that China's economy will recover this year after three years of zero-COVID policy. What went wrong? How much should we be concerned about China's economic trajectory? 2023 was supposed to be the year China's economy roared back. ![]()
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