Analysts Question Premier Li Qiang’s Claims on China’s Growth

China's Premier Li Qiang (R) speaks during the 26th ASEAN-China Summit at the 43rd ASEAN Summit in Jakarta on Sept. 6, 2023. (Yasuyoshi Chiba/Pool/AFP via Getty Images)

News Analysis

While China’s Premier Li Qiang made unabashed claims about the country’s economic health at Davos on Tuesday, some analysts are questioning the robustness of the official GDP numbers released on Wednesday, arguing that the recovery was far shakier than many analysts and investors anticipated.

Besides, along with a worsening real estate crisis, mounting deflationary fears, and poor demand, the world’s second-largest economy may see weaker growth this year, with its structural slowdown threatening to linger for years to come.

The official numbers released Wednesday showed China’s GDP grew 5.2 percent in the fourth quarter (October to December) in 2023 from a year earlier, which was above Beijing’s target of around 5 percent. The country’s GDP hit a record 126.06 trillion yuan (about $17.71 trillion) in 2023, the National Bureau of Statistics (NBS) announced.

“[Still] China’s economy lost momentum in Q4 [fourth quarter], according to the official GDP figures,” said Julian Evans-Pritchard, head of China Economics at Capital Economics, in a client note viewed by The Epoch Times.

“But we suspect that’s because they [the Chinese authorities] failed to acknowledge the full extent of the weakness earlier in the year. [While] the GDP was up from 4.9 percent in Q3, this pick-up reflects a weaker base for comparison due to COVID disruptions in Q4 2022. In seasonally-adjusted quarter-on-quarter terms [and] our in-house alternative to official GDP suggest that there was an outright contraction in Q3,” he added.

According to Mr. Evans-Pritchard, the overall activity data has been more mixed, and although the data support a recent minor uptick in momentum, the rebound is weak, with little likelihood of avoiding a further recession later this year.

“And while we still anticipate some near-term boost from policy easing, this is unlikely to prevent a renewed slowdown later this year,” Mr. Evans-Pritchard wrote in the note. “But achieving that pace of expansion in 2024 will prove a lot more challenging.”

Analysts had expected China’s GDP growth to accelerate from 4.9 percent in the third quarter of 2023 owing to a flurry of policy support measures. Still, they noted that further stimulus was required to put activity on a more sustainable path.

They were also disappointed that the People’s Bank of China, which had committed to step up policy support for the economy, didn’t cut interest rates on Monday. The central bank retained the rate on its one-year policy loans at 2.5 percent, bucking expectations of a cut of at least 0.1 percent.

Fragile Economy

The Chinese premier gave a rosy picture of the economy, enticing multinational companies to invest in a country whose stability is in doubt.

He asserted that the “Chinese market is not a risk, but an opportunity.”

“[The] Chinese economy is making steady progress and will continue to provide strong impetus for the world economy. In 2023, the Chinese economy rebounded and moved upward, with an estimated GDP growth of around 5.2 percent, higher than the around 5 percent target set at the beginning of the year,” Mr. Li said in his speech, adding that the “overall trend of long-term growth will not change.”

Analysts, however, disagree and said that recent data suggested the economy was starting 2024 on shaky footing, with persistent deflationary pressures and a slight uptick in exports unlikely to kindle a quick turnaround in weak domestic activity.

“I don’t think this will be seen as wonderful news,” said Alicia García Herrero, chief economist at the French investment bank Natixis, in a comment to Reuters.

According to Ms. Herrero, for a year like 2023 that follows the COVID-19 pandemic, the right growth benchmark should be 2021, when growth was 8.1 percent, not 5.2 percent. Due to its ongoing structural slowdown, the Chinese economy is set to have significantly slower growth in 2024 compared to 2023. The domestic messaging, hence, is largely unfavorable.

“The GDP figures notwithstanding, we think the data are consistent with a slight improvement in momentum recently,” added Mr. Evans-Pritchard, who also said that China’s economic recovery “clearly remains shaky.”

According to the expert, the steepest monthly decline in new house prices since 2015—0.4 percent in December, as reported by NBS—is of particular worry, as it has the potential to further erode faith in the housing market.

The NBS Wednesday data revealed the sharpest decrease in home prices in nine years, an 8.5 percent yearly drop in sales by floor area, and a collapse in construction starts.

The property sector plays a major role in the Chinese economy, contributing to up to 30 percent of GDP. Real estate assets account for around 70 percent, the largest amount, of family wealth.

Others say that while Beijing has implemented stimulus measures to boost the economy, the impacts are yet to be felt since the same old infrastructure expenditure has been overdone over the last two decades. The NBS data also reveal an unequal growth environment, which does not provide much confidence in a lasting comeback.

Previously published data also revealed that China’s exports fell 4.6 percent in 2023 owing to lower demand from key trade partners such as the United States, the European Union, and Southeast Asia. Its imports decreased by 5.5 percent, too, as local demand for commodities such as crude oil and steel fell.

Bottom Line: Weaker 2024

The reality of a still-shrinking property sector, restricted consumer spending, a declining trade surplus, and devastated local government finances indicate that actual growth in 2023 was closer to 1.5 percent, says Rhodium Group, a U.S.-based independent research group.

After the COVID-19 restrictions were lifted, China’s fundamental downturn became apparent in 2023. To pay for previous growth, the debt-intensive development model that China has used since the global financial crisis is now limiting growth for both today and tomorrow. Given the extreme property distress of the previous two years, a cyclical upturn might occur in 2024, according to a recently published report by Rhodium Group.

“Looking ahead, China may see a cyclical recovery to perhaps 3.0-3.5 percent growth in 2024 as property bottoms out, although structural slowdown will naturally remain the dominant story for years to come,” the report added.