China’s economy likely to grow at 6 percent in year 2023: Experts

Although there are still great uncertainties ahead, the Chinese economy is likely to rebound strongly in 2023. This observation is based on two rationales. First, because of the low base GDP growth rate of 3 percent in 2022, the base effect will play an important role in shaping China’s growth rate in 2023.

Second, China still has ample room to implement expansionary macroeconomic policies to stimulate the economy when necessary. Barring “black swan” events, China’s

GDP growth rate in 2023 should exceed 5 percent. To boost confidence, the Chinese government could set the GDP growth target at 6 percent for 2023.

The most recent official statistics show that the contributions of final consumption, capital formation, and net exports to China’s GDP growth in 2022 were 1 percent, 1.5 percent, and 0.5 percent, respectively.

Consumption accounted for some 55 percent of GDP. It should be the most important contributor to GDP growth. In fact, in 2021, its share of the contribution to GDP growth was 65.4 percent. However, in 2022 the share shrank to just 32.8 percent. Certainly, China needs to see a strong recovery of consumer demand, but it remains unclear how direct stimulation measures will work out.

While consumption may “rebound with a vengeance” in the short term, it won’t last if household incomes fail to increase and income expectations fail to improve. Measures such as issuing consumer coupons, as advocated by many scholars, may be necessary for poverty alleviation and social stabilization. But these measures may not work to encourage households to spend more in a sufficiently large and sustained way. Instead, households may save more, because they have purchased certain goods and services with coupons. The key to promoting household consumption is an increase in household incomes based on economic growth.

For decades, China’s economic growth was mainly driven by investment. Though since 2010, the contribution to GDP growth by investment has decreased significantly. However, in 2022 growth in investment once again became the main driver for GDP growth. Its share of contribution to GDP growth surpassed 50 percent. Investment in China consists of three main categories: Manufacturing investment, real estate investment, and infrastructure investment. agencies