China’s economy set to soar in 2023

In March 2022, the Chinese government aimed for an economic growth rate of 5-5.5% for the year. At that point, this target seemed achievable, however, the emergence of the Omicron variant and subsequent lockdowns had a negative impact on both supply and demand and resulted in a growth rate of only 3%.

Currently, the outlook for China’s economy is optimistic. With the government’s recent departure from its zero-COVID policy in December, the economy has shown signs of revival, demonstrated by the 23% increase in road travel during the Spring Festival holiday in late January.

There are strong indications of higher growth in 2023, including the low base from 2022, ample room for monetary and fiscal policy support, and a solid fiscal position compared to other developed countries. However, the direction of policy support remains uncertain, as exports are unlikely to drive growth and the impact of measures to stimulate consumer demand is unclear.

Expanding fiscal policy could be beneficial in promoting investment, which played a crucial role in China’s GDP growth until 2010. Although real estate investment has decreased, investment in manufacturing and infrastructure has increased. The real estate sector is hoping for stability in investment while manufacturing investment will largely depend on market forces.

However, the government should provide support for infrastructure investment, as the country still has unmet infrastructure needs. Some may argue that China already has too much infrastructure investment, but it is still necessary for the country’s development. A challenge for the government in 2023 will be balancing growth and price stability, as inflation may rise this year.

Fiscal and monetary expansion cannot resolve China’s fundamental problems, but it can provide an opportunity for the government to implement reforms. The government must act quickly to make the most of this opportunity, as the space for macroeconomic expansion may shrink. If the government effectively utilizes fiscal and monetary policy and pursues reforms, 2023 could be a prosperous year for China.

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