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Tuesday, January 17, 2023
China's Economic Growth in 2022 and Prospects
He Jun

According to the preliminary estimations published by China's National Bureau of Statistics (NBS), the country's annual gross domestic product (GDP) in 2022 was RMB 121020.7 billion. Calculated at constant prices, there is an increase of 3.0% over the previous year. In terms of industries, the added value of the primary industry was RMB 8,834.5 billion, an increase of 4.1% over the previous year. The added value of the secondary industry was RMB 4,8316.4 billion, an increase of 3.8% For the tertiary industry, it was RMB 63,869.8 billion, an increase of 2.3%. In terms of quarters, the GDP grew by 4.8% year-on-year in the first quarter, 0.4% in the second, 3.9% in the third quarter, and 2.9% in the fourth.

In 2022, China's economic growth rate was only 3%, much lower than the 5.5% economic growth target set in March last year. While the result was not surprising, last year's economic growth rate was the lowest in decades. In the history of economic development of the country, this is the second-lowest economic growth rate in the past 47 years. In 1976, after the Tangshan earthquake, the Chinese economy experienced negative growth (-1.6%) that year. In 1989, the West imposed severe sanctions on China. In 1989 and 1990, China's economic growth slowed down to 4.1% and 3.8%. Afterward, during the time of the Asian financial crisis that coincided with the Kosovo War, China's economy maintained a growth rate of more than 7%. Even after the Sichuan earthquake in 2008 and during the time of global financial turmoil, China's economy still maintained a high growth rate of more than 9%. In the past three years (2020-2022) when the COVID-19 pandemic ravaged the world, China's economy has been hit hard. In 2020, due to the outbreak of the pandemic, the economic growth rate dropped to 2.3%, rising to 8.1% in 2021, but in 2022 it slowed down sharply again to 3%. Data shows that, since 1976 and the entire period of China's reform and opening up, the two lowest economic growth rates have occurred within the past three years.

Looking at several major cycles since 1989, the overall growth rate of China's economy has shown a change of accelerating growth, reaching a high growth, and then significantly slowing down. Based on official data, from 1989 to 2002, the average growth rate of the country's economy was 9.3%; from 2003 to 2012, the average growth rate was 10.4%; from 2013 to 2022, it dropped sharply to 6.2%. In 2022, the figure was 3%, which is only half of China's average economic growth rate in the past decade, a sharp decline in growth rate.

Figure 1: Changes in China's Economic Growth Rate from 1989 to 2022

Source: NBS, chart plotted by ANBOUND

Although China's economic growth rate in 2020 is only 2.3%, in the opinion of the researchers at ANBOUND, it is more significant than the 3% rate in 2022. First, 2019 is a normal year, where the base of economic growth is relatively high. Second, due to the impact of the pandemic in 2020, the global economy is in recession. The global GDP growth of that year was -3.27%, and only 38 countries or regions in the world achieved positive GDP growth. China's economic growth was 5.57 percentage points higher than that of the global economy. The IMF estimated that the world economic growth rate in 2022 was 3.2%, and the economic growth rate of emerging markets and developing economies was 3.7%. If the IMF's estimate is accurate, it means that China's economic growth rate in 2022 was lower than the average level of the world economy, even lower than the growth rate of emerging markets and developing economies.

From the specific macro data, some noteworthy economic trends can be discerned.

First, the growth rate of investment is slowing down, and private investment continues to slump. According to data from the NBS, from January to December 2022, the national fixed asset investment (excluding farmers) increased by 5.1% year-on-year, of which, private fixed asset investment was RMB 31014.5 billion n (accounting for 54.2%), an increase of 0.9% year-on-year. At the same time, state-owned holding investment increased by 10.1% year-on-year. From the monthly investment changes since 2021, it can be seen that since 2022, private investment has declined significantly, and the gap between the growth rate of state-owned investment and investment is getting wider. In the many surveys, researchers at ANBOUND found out that due to poor expectations for the future, private companies generally lack investment desire and capabilities. Even those private companies that still have investment capabilities have adjusted their development strategies one after another, adopting a more conservative wait-and-see or contraction strategy, prioritizing survival in effect. In this context, the increase in investment increments is largely borne by state-owned enterprises.

Figure 2: Declining Growth Rate of China's Private Investment

Source: NBS, chart plotted by ANBOUND

Second, there is a cooling down of foreign trade. According to customs statistics, the total import and export value of China's goods trade was RMB 42.07 trillion in 2022, an increase of 7.7% over 2021, breaking through the RMB 40 trillion thresholds for the first time. Among them, exports were RMB 23.97 trillion, a year-on-year increase of 10.5%. Imports were RMB 18.1 trillion, a year-on-year increase of 4.3%. Although China's commodity exports and imports have maintained positive growth throughout the year, the growth rate has slowed down significantly. What is more noteworthy is the downward trend of foreign trade. In the last three months of 2022, in terms of USD, its exports and imports have continuously experienced negative growth, with export growth of -0.3%, -8.7%, and -9.9% respectively, as well as import growth of -0.7%, -10.6%, -7.8%, respectively. In 2021, exports, which played a role in driving the economy, became significantly colder in 2022. With the adjustment of the global supply chain, the relocation of Chinese manufacturing, and the global economy facing the risk of recession, it is obvious that China's foreign trade in 2023 will not be optimistic.

Third, consumption, which is the main pillar of support for the Chinese economy, continues to slump. In December 2022, the total retail sales of domestic social consumer goods were RMB 4,054.2 billion, a year-on-year increase of -1.8%. In the same year, the consumption of goods for the whole year also declined, and the total retail sales of social consumer goods were RMB 43,973.3 billion, a decrease of 0.2% from the previous year. ANBOUND researchers have repeatedly warned of sluggish consumption in China. As the main contributor to China's economy, the continued slump in consumption deserves great attention. Household consumption is highly related not only to income levels but also to expectations for the future. To some extent, consumption appears to be influenced by expectations, including expectations for future economic and personal income growths, as well as for employment, consumption environment, and national development. This implies that if ordinary people lack confidence in the future and are unhappy, it will be difficult for China to see an increase in consumption. Judging from the situation in the past three years, Chinese residents' consumption has experienced a "downgrade", i.e., shrinking from "developmental consumption" to "survival consumption", and the contribution of consumption to economic growth is obviously declining.

Figure 3: Year-on-Year Growth Rate of China's 2022 Total Retail Sales

Source: NBS

From the economic data in 2022, what we see is a severely traumatized Chinese economy. If China's economy gradually recovers after relaxing its measures against COVID-19, it will also be a slow recovery process. As ANBOUND researchers have previously pointed out, what China needs in 2023 is a moderate recovery under recuperation, not a lot of strong stimulus projects promoted by the government to reverse the economic downturn. Several years of strict pandemic policies have depleted the foundation of the Chinese economy. From private enterprises to ordinary residents, confidence in the economy and the future has been eroded. This will affect market entities and consumers' confidence in the future. If the changes in the international geopolitical and geoeconomic situations are taken into the account as well, there will still be even more uncertainties awaiting China.

Final analysis conclusion:

In 2022, China experienced the second-lowest economic growth rate in 47 years, which in fact is the manifestation of its economic problems under both internal and external factors. What China urgently needs now is recuperation, gradual recovery, careful use of limited economic resources, and the need to place its people's livelihoods as priorities in decision-making.

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