China, hampered by three years of COVID-related health restrictions, lifted these measures at the end of 2022, significantly rejuvenating its economy at the beginning of last year. However, this resurgence has faltered, facing numerous obstacles, including a somber outlook among households and businesses, which hampers consumption.Unprecedented real estate turmoil, high youth unemployment, and global deceleration have also hindered traditional drivers of Chinese growth. Nevertheless, in 2023, the country still saw its Gross Domestic Product (GDP) expand by 5.2% year-on-year, as announced by the National Bureau of Statistics (NBS) on Wednesday.

This performance surpasses last year’s government target of “around 5%.” However, this figure, which would be the envy of most major economies, remains the slowest pace for China since 1990 (3.9%), excluding the COVID-19 period.On the other hand, comparing the third and fourth quarters, which provides a more accurate snapshot of the situation, the growth rate is significantly more modest (+1%). Chinese stock markets closed lower, with Hong Kong dropping by 3.7% and Shanghai losing 2%.

“A disappointing recovery”

“Last year, China experienced the most disappointing recovery imaginable. Nonetheless, it is still a recovery,” noted analyst Shehzad Qazi from China Beige Book research firm, emphasizing that stronger support for economic activity will be required in 2024. “Promoting economic development” last year was indeed a challenging task, acknowledged a spokesperson from the NBS, Kang Yi, during a press conference.In December, retail sales, a key indicator of household consumption, slowed down (+7.4% year-on-year), following a sharp acceleration in November (+10.1%). Analysts surveyed by Bloomberg had expected a less pronounced deceleration (+8%). Meanwhile, industrial production slightly accelerated in December (+6.8% year-on-year) after a 6.6% increase the previous month.As for the unemployment rate, it inched up to 5.1% in December, compared to 5% in November. Among those aged 16 to 24, it stood at 14.9%, according to a new criterion that excludes students, following a record level in May. However, the unemployment rate provides an incomplete picture of the situation, as it only applies to urban workers.It excludes millions of rural migrant workers from rural areas, a population more vulnerable to economic slowdown, exacerbated by the real estate crisis. This sector has long represented over a quarter of China’s GDP in a broad sense and provided a significant source of employment.

Real estate woes

Since 2020, Beijing has tightened access to credit for real estate developers to reduce their debt burden. The financial troubles of emblematic groups like Evergrande and Country Garden have fueled buyer mistrust, amidst unfinished properties and falling square meter prices. So far, Beijing’s support measures for the sector have had limited impact.In December, major Chinese cities once again recorded a month-on-month decline in property prices, according to NBS data. Of the 70 cities that make up the official reference indicator, 62 were affected (compared to 33 in January 2023, a sign of deteriorating conditions). The decline is particularly pronounced in small and medium-sized cities, as highlighted by analysts at Goldman Sachs investment bank.For Chinese citizens, property purchases have long been seen as a safe investment for savings. The drop in real estate prices is a blow to their financial portfolios. “Stronger support for developers could alleviate concerns” about their financial health and revitalize this critical sector, noted Michelle Lam, an economist at Société Générale bank.Highly political and subject to skepticism, China’s official GDP figure remains closely watched due to the country’s significant role in the global economy. This year, according to World Bank forecasts, China is expected to see its GDP slow to 4.5%. “The main obstacles remain the dysfunction in the real estate sector and the resulting low level of household consumption,” pointed out Teeuwe Mevissen, an analyst at RaboBank.The government is expected to announce its official target in March.