Even Though China’s Economy Expanded, The Response It Got Was Meh

Even Though China’s Economy Expanded, The Response It Got Was Meh
Stéphane Renevier, CFA

about 1 month ago2 mins

What’s going on here?

China’s economy might’ve found a sprinkling of baking soda, but economists’ response was still flat as a pancake.

What does this mean?

China managed to pull its economy up 5.2% last year, beating the official target and the 3% uptick from the year before. But economists aren’t counting it as a redemption yet. China’s economy was 5% bigger than in 2022, sure, but that’s actually a fairly small increase from a year plagued by Covid lockdowns. In fact, it’s estimated that the country would have fared some 2% worse if 2022 had been a more regular year. Remember, too, that the struggling real estate industry is defying the government’s best supportive efforts. And with folk cutting back as their biggest assets lose value, the country’s witnessing its longest streak of deflation since 1999. To top it off, China has racked up debt worth 280% of its economy, an all-time high.

China GDP

Why should I care?

The bigger picture: China needs an anti-aging serum.

China’s population fell by around two million over the last year, a drop double the size as the one the year before. What’s worse, “small and mighty” doesn’t apply here: a third of the population is expected to be in the senior category within a decade, setting the country up for a smaller workforce, strained pension systems, and limited demand for houses fit to rear a family.

China’s population shrinks
Source: Bloomberg

For markets: Investing is a waiting game.

Optimistic investors parked some cash in China during 2023, but nearly nine-tenths of it has already been pulled out. That said, Wall Street seems to be willing to wait it out: JPMorgan has forecast that the MSCI China index will have risen 18% by this December from the last, and Goldman Sachs’ targets look similar. So if you see potential in China’s more hardy sectors, like automation, robotics, and green technology, then you could see this slump as a January sale.

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