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China in 2023: is the economy OK?
STORY: Was this the year that China started to look more like Japan? 12 months of sputtering growth has some economists asking the question. After lockdowns ended, Chinese shoppers were supposed to go on a spending spree. Instead they chose to save for a rainy day. Foreign investment was meant to resume, but cash actually flowed out. And the property market was supposed to stabilise, but instead sank deeper into crisis. Such factors led to an uneven post-COVID economic recovery, even if the economy is on track to hit its growth target for the year of about 5%. Reuters deputy Hong Kong bureau chief Marius Zaharia says that all raised some big questions: “Voices that compare China today with Japan in the 1990s have grown louder this year. The core of the problem is its economic model, which has done miracles for many decades, since it was adopted in the 1980s. But according to some economists, it stopped working so well – about a decade ago, when it began producing more debt than growth”. Japan has long since accepted it will never return to the roaring growth rates it once knew. With its population now shrinking and ageing, some economists think that’s China’s fate too. Beijing officials are having none of it: “The fundamentals of China’s long-term economic growth have not changed and will not change”. Policymakers have vowed to shift the economy away from its reliance on property. This year they pledged to boost consumption by households instead. But analysts say there is still no clear road-map for change. Mounting tensions with the U.S. don’t help either, as President Xi Jinping acknowledged in November: “Whether China and the United States are ultimately rivals or partners is a fundamental and overarching question.” Any change could stoke resentment. Youth unemployment has already soared, and many Chinese have seen their wages cut. Falling property prices are making homeowners feel poor And tackling the vast debts built up by property firms and local governments will mean asking who pays the bill. Households, firms, banks, someone else? It’s not clear. Marius Zaharia again: “Reform is always difficult, anywhere, but also in China, because it runs into considerations of social stability. And it runs into very tough decisions to be made as to which institutions or which sectors of the economy will bear the cost of these policies”. For now, government advisers are still talking about targeting 5% growth again next year. Looking across the sea to Japan, some economists think that might be hard to sustain.
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