September demonstrated signs of a better recovery in China’s economy, according to early indicators and satellite data analysis. Key economic activities such as mall traffic, cement manufacturing, and traffic congestion reached record highs, suggesting renewed consumer confidence and optimistic growth in the construction sector. This information was observed by a US-based company, SpaceKnow, which utilized satellite imagery to trace these improvements. The company’s new orders prediction benchmark also saw a rise. However, concerns about the sustainability of this growth emerged due to persistent weakness in the property sector. Despite some fluctuations, Chinese consumer sentiment remained relatively stable, indicating a potential for continued recovery. (Read Also: Global Exhibitors Gear Up for the Sixth China International Import Expo) Momentum in Economic Indicators Other economic indicators also offered promising signs of increased momentum. Notably, the Sales Growth Index and the Emerging Industries PMI experienced significant rises. Economists anticipate that China’s manufacturing PMI will continue to rise in the coming months, suggesting an expansion in output. The recovery is predicted to continue, driven by fiscal adjustments, stable exports, and property policies. Although the economy has started to show signs of recovery, it’s important to note that the economic headwinds that faced Asia and the Pacific last year have started to fade. These developments are helping improve prospects across the region, with growth set to accelerate. The region’s emerging and developing economies, primarily driven by China and India, are poised to contribute more than half of global growth this year. However, the near-term outlook for Asia’s advanced economies remains mixed. Deflationary Pressure and Slow Recovery Despite being a beacon of economic recovery, China is facing deflationary pressure due to a decrease in global demand for its goods. This change in dynamics means that China can no longer rely on its pandemic strategy of exporting its way out of the crisis based on strong Western demand. The cooling down of the global demand landscape and a correction in global trade indicate that export strength will no longer be a pillar for Chinese economic growth. Manufacturers are still grappling with the impact of previous restrictive measures and lockdowns on supply chains. This means that China’s recovery is going more slowly than analysts had hoped after it lifted COVID restrictions. As China’s economy continues to lose momentum, the outlook for the reopening might disappoint those who were hoping for a much stronger lift from China’s rebound. (Read Also: China’s Former Central Bank Deputy Governor Faces Bribery Charges) The Role of Consumption and Tourism Interestingly, China’s growth in 2023 has been largely driven by consumption, marking a shift from its usual reliance on exports, real estate, and construction. This is not good news for neighbors that export intermediate goods and raw materials used in its manufacturing industry. Consumption-driven growth also has a much smaller multiplier effect, meaning it will have a weaker impact on the rest of the economy. However, one major bright spot for the region is that Chinese tourism is surging, thanks to three years of pent-up demand. Tourism could rebound significantly this year, bringing it close to pre-pandemic levels, as Chinese tourists return to popular countries like Japan, South Korea, Thailand, and Singapore. Need for Structural Reforms Despite the promising signs of recovery, China still faces significant economic challenges. The contraction in the real estate sector remains a major headwind, and there is still some uncertainty around the evolution of the virus. Longer-term headwinds to growth include a shrinking population and slowing productivity growth. Therefore, comprehensive macroeconomic policies and structural reforms are needed to secure the recovery and promote balanced, green, and inclusive growth. With a shrinking labor force and diminishing returns to capital investment, growth in the coming years will depend on boosting declining productivity growth. Undertaking reforms such as gradually lifting the retirement age to increase labor supply, strengthening unemployment and health insurance benefits, and reforming state-owned enterprises would significantly help to boost growth in the coming years. Read More
China’s Economy Shows Signs of Recovery Amid Challenges
Categories: Economic History
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