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Five Questions About China’s Economy in 20236/3/2023
Five Questions About China’s Economy in 2023 Reopening will be the biggest catalyst for China’s economic recovery in 2023. However, the earlier and faster-than-expected reopening led to a spike in COVID-19 infections which caused major disruption in December. While the government has stopped publishing daily infection cases, J.P. Morgan estimates the infection ratio had risen to about 40% of the total population by the end of 2022, with herd immunity reached in January, up from less than 1% in November 2022.To get more china economy news latest, you can visit shine news official website.
In addition, there was no new infection wave during the Lunar New Year break, which paves the way for domestic production and consumption normalization in the coming months. “Putting everything together, it appears that China’s economic recovery is more front-loaded compared to our baseline forecast,” said Haibin Zhu, J.P. Morgan’s Chief China Economist and Head of Greater China Economic Research. “The economic recovery will start in the current quarter with 7% quarter-over-quarter SAAR growth, followed by 7.4% in the second quarter, 5.5% in the third quarter and 6.1% in the fourth quarter.” Full-year GDP growth forecast stands at 5.6%.”
Across the rest of the world, slowdowns in growth can mainly be attributed to high inflation. In China, they are mainly due to the Omicron drag. China has been an outlier compared to the rest of the global economy, facing broad-based disinflation with lagging demand recovery despite steady production recovery. The consumer price index (CPI) averaged 2% growth in 2022 — which is below the 3% target — and the producer price index inflation was negative throughout the fourth quarter of 2022.
The major factor that will affect inflation this year is the rapid reopening of the economy, with consumer prices expected to recover from the second quarter of 2023. While there are risk factors, J.P. Morgan Research predicts that inflation will stay in check. “We expect CPI inflation to stay below 2% for most of this year, before turning up and approaching 3% toward the end of the year and into 2024,” said Zhu. “Overall, we look for headline CPI inflation to average 2% year-over-year in 2023.”However, there are concerns that pricing pressure may spiral out of control and accelerate significantly during reopening, adding stress to global inflation throughout 2023. There are two main risk factors:
Across sectors, housing was the largest drag on China’s economic growth in 2022 and the market registered record-low activity, despite policy adjustments introduced from late 2021. In 2022, new home sales (in floor space) fell 26.8%, new home starts fell 39.8% and real estate investment fell 10%.
In November last year, the People’s Bank of China (PBOC) and China Banking and Insurance Regulatory Commission (CBIRC) announced a 16-point rescue plan for the housing market, marking the most significant shift in housing policy since 2016. “On the investment side, this is a game changer for prudent private developers,” said Zhu. “The November measures explicitly address developers’ funding problems.”
In an attempt to boost demand, further measures have followed, which focus on lowering down payments and relaxing restrictions around purchasing a home. This indicates that housing has become a policy priority and highlights the importance of achieving stability in the market.
The dramatic changes to housing policy come after concern over risks to financial stability as well as a desire to achieve growth stabilization. The major housing market correction which has been under way since the second half of 2021 has led to rising developer defaults, increasing pressure on local governments and a collapse in land sales. Further correction runs the risk of accelerating house price declines, which have so far only been minor. Other negative outcomes include increasing financial risk for households as well as the potential for a balance sheet recession.
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