Kavan Choksi Finance Expert Offers Insight Into the Current State of the Chinese Economy

A bigger-than-expected expansion was shown by the Chinese economy in the period of July-September 2023. This suggested that the recent set of measures put in place by its government to boost the GDP had worked. As Kavan Choksi Finance Expert points out, as per the National Bureau of Statistics of China, the GDP expanded by 4.9% in a yearly comparison, following the 6.3% annual growth rate of the previous quarter. Increase in retail sales was one of the key drivers of this growth. It is also a good indicator of consumption. Industrial output that measures activity in the mining, manufacturing, and utilities sectors essentially rose at the same pace as previously, by 4.5% year on year in September.

Kavan Choksi Finance Expert provides an introduction to the state of China’s economy

The International Monetary Fund (IMF) recently upgraded its 2023 gross domestic product growth forecast for China to 5.4% from 5%.  They cited a “strong” post-COVID-19 recovery as the reason for this upgrade. IMF, however, still does expect the second biggest economy on the planet to slow down the next year. If the weakness in the property sector of China continues, and it faces subdued external demand, then the GDP growth could slow to 4.6% in 2024. This forecast is however is better than its October expectation of 4.2% in the IMF’s World Economic Outlook (WEO). These projections reflect upward revisions of 0.4% points in both 2023 and 2024 relative to the October WEO projection owing to a stronger third-quarter outturn than expected, as well as certain recent policy announcements. Growth is projected to gradually slow to about 3.5% by 2028 over the medium term, amid headwinds from population aging and weak productivity.

The upward revision of the IMF followed a decision by China to approve a 1 trillion yuan ($137 billion) sovereign bond issue. China also allowed local governments to frontload part of their 2024 bond quota in a move to support the economy.  While many measures have been introduced in China to support its property market, more push is required for faster recovery and lower economic costs during the transition. A robust policy package is needed that includes measures for accelerating the exit of nonviable property developers, allocating additional central government funding for housing completions, and removing impediments to housing price adjustment. It has also become important to assist viable developers in repairing their balance sheets and adapting to a comparatively smaller property market.

As Kavan Choksi Finance Expert mentions, there is a chance that a combination of local government debt crunch and the downturn in the property sector could wipe out much of China’s long-term growth potential. Local debt reached 92 trillion yuan or 76% of China’s economic output in 2022, going up from 62.2% in 2019. The central bank has to implement certain fiscal framework reforms and balance sheet restructuring strategies in a coordinated manner in order to address local government debt strains. Steps have to be taken to close local government fiscal gaps and control the flow of debt.

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