China’s Economy Shows Signs of Stabilization and Recovery in First Half of 2023, But Growth Remains Weaker Than Expected
China has released its economic data for the first half of 2023, revealing that the country’s GDP increased by 5.5% year-on-year. In the second quarter, the GDP growth rate accelerated to 6.3% year-on-year and 0.8% month-on-month. While this indicates a trend of stabilization and recovery in the overall economic operation compared to 2022, it falls significantly short of market and investor expectations.
Despite lower-than-expected growth, the Chinese economy continues to show signs of recovery and structural improvement. Several key aspects of economic operation highlight this recovery trend. Firstly, employment has improved, with the national surveyed urban unemployment rate averaging 5.3% in the first half of the year, down 0.2 percentage points from the first quarter. The unemployment rate for the main employed population aged 25-59 has also been significantly lower than pre-pandemic levels, leading to an overall recovery in residential sector income.
Secondly, industrial production has rebounded from a low point and recovered relatively quickly. The added value of industrial enterprises above designated size increased by 3.8% year-on-year in the first half of the year, and 4.4% year-on-year in June. Manufacturing PMI also rose to 50.3% in June, indicating a return to growth for the industry.
Thirdly, the growth of upgraded consumption has picked up, supported by a decline in unemployment rates and the recovery of consumer confidence. However, consumption is still facing challenges, with Dragon Boat Festival consumption weaker than before the pandemic, and a slowdown in car sales. Total retail sales of consumer goods increased by 3.1% year-on-year in June, with offline services such as catering seeing relatively stronger performance.
Fourthly, investment has supported relatively stronger economic growth, with fixed asset investment slowing down but stabilizing. National fixed asset investment (excluding rural households) increased by 3.8% year-on-year in the first half of the year. Infrastructure investment increased by 7.2%, while real estate development investment decreased by 7.9%.
Lastly, there are initial signs of gradual improvement in corporate profits. State-owned enterprises saw a 10.9% increase in profits from January to May, while the decline in industrial enterprises’ profits narrowed for three consecutive months. Manufacturing profits improved significantly in May, leading to a reduction in the decline of industrial profits.
Despite these positive indicators, the real problem in China’s economy lies in insufficient confidence and demand. The recovery of consumption remains unstable, with structural features and the “scar effect” of the pandemic impacting overall retail growth. Fixed asset investment also weakened in the second quarter, indicating a lack of confidence and cautious expectations among economic entities.
In conclusion, China’s economy has shown signs of stabilization and recovery in the first half of 2023. However, the growth remains significantly weaker than market expectations. The challenges of insufficient confidence and demand must be addressed to ensure a stronger and more sustainable economic recovery.