After 2022, China wants to revive

This thesis is not unanimous, but the latest news from China gives it more support.

Demographic problem

In 2023, China will give up its status as the first demographic power. Despite the easing of the one-child policy since 2015, the country lost 850,000 people in 2022 due to a declining birth rate. Thus, the number of children per woman decreased to 1.15. Required for generation 2.1 update.

At this rate, China will fall below the one billion population mark around 2075, and by the end of the century will have only 672 million citizens, falling third behind India and Nigeria. Above all, population decline is outpacing projections that place it more than 2030.

The authorities, well aware of the problems caused by the acceleration of the transition, tried to react by offering future parents benefits or extended maternity leave, but to no avail. Chinese women, who already outnumber men—the first victims of the one-child policy—are more educated, marry later (if they even do), and have the lowest abortion rate. When a child is born, its cost in terms of housing, education or health is considered too high to have a second child.

The underlying economic risks are enormous. China already faces a huge problem in financing pensions, with pensions likely to rise from 5% to 20% of GDP within a decade, and the working population will shrink by three million a year. While women are allowed to retire at 55 and men at 60, the reform of the extension of the insurance period together with the development of supplementary pension through capitalization seems essential. But these measures will not reverse the birth curve if they will, at best, fund the pension system.

However, the labor factor is central to all development models. To be deprived of it is to base future growth on capital, i.e. investment and productivity growth. China already faces a capital efficiency problem, especially in the public sector, where often overburdened companies are forced to spend more resources to create the same amount of value. In addition, his goal was to move toward a growth model that would be more difficult in a less labor-intensive society, less dependent on investment.

Productivity is also influenced by the demographic question: if China still has enough room to move up the value chain and the share of the skilled population continues to grow, a slowdown in the renewal rate of the working population automatically leads to an increase in productivity. adopting new methods and technologies – if more Chinese are required to work longer hours. Within ten years, 30 percent of the population will be over 60 years old.

Faced with a model problem, China is therefore looking for drivers to operate next year.

Growth problem?

3%, or 2.5 percentage points below the target announced in March: if the figure was expected by consensus, commentators widely interpreted it as the second lowest since 1976, after 2.1% in the first year of 2020. Covid.

We are talking, of course, about sanitary measures that lead to a decrease in private consumption, in particular, a decrease in services and a blockage of logistics chains. For more than a year, Covid tests applied to the urban population every 24-72 hours would cost the Chinese state alone about 2% of GDP. Ironically, the slight improvement in December’s retail sales figures (-1.8% when the annual consensus expected a -8.6% decline) was due to fears of households stockpiling food and medicine during the wave of infections. the end of the year.

Consumer behavior during the Lunar New Year may provide the first indication of expected spending levels in 2023, when the economy fully reopens.

A recovery in private consumption will be a key driver for growth as foreign demand, which supports industrial production in 2021 and 2022, contracted for a third straight month in December, with exports down 9.9% year-on-year. The latter remains high – about $300 billion a month, before Covid we were over 200 billion, but China can no longer count on a positive contribution to growth from foreign trade in 2022.

Investment, especially public investment, remains, which must necessarily act as an adjustment variable.

Will it be enough to change the discourse of the authorities?

We will know the official growth target for 2023 in March. However, what has been announced by each of China’s provinces gives a strong indication of what the national target should be. Since most are above 5%, this number should definitely be maintained. China can rely on favorable base effects, especially in the services sector, but the state wants to ensure the support of the private sector.

In recent weeks, the discourse of the authorities has tried to be more optimistic about the economy. Two sectors that have been particularly shaken in the last two years seem to be priorities. The first is a technology weakened by sudden and unexpected regulatory measures. Thus, two symbolic decisions were made in recent weeks: Jack Ma, the president of Alibaba, resigned from Ant Group, the financial arm of his company. Ant’s surprise cancellation of its IPO in November 2020 was seen as the first sign of a tightening of the sector.

Didi, the Chinese VTC app (among others), meanwhile had the power to relaunch new apps on the market and, in particular, to register new users. His troubles began when the company expressed interest in listing in the US. After that, Chinese authorities accused it of failing to protect the data of its Chinese users and fined it $1.2 billion. Remarkably, Chinese regulators have even stated that they are willing to reconsider overseas IPO filings by Chinese companies. de facto suspended for two years.

The revival of the technology sector has a dual purpose: to achieve autonomy, and America is taking action in this direction allocation technologies has increased in recent months and offers opportunities for young graduates, unemployment among 16-24 year olds is still high (16.7% in December).

Real estate, which suffered in the second sector, also received more open support from the authorities. Walking a tightrope – they don’t want to position themselves as lenders of last resort, especially in a sector they think is responsible for over-indebtedness – they nevertheless pointed to the elimination of the “three red lines” that prevent it from borrowing more. the promoters were obliged to refinance themselves and thus caused a wave of defaults.

Banks were also invited to release credit lines to complete the construction of ongoing projects, and the household contribution rate was revised downwards in some municipalities. As a whole, real estate accounts for about 20% of China’s economy, but the challenge is to achieve a soft landing that both manages to clear the market on the developer side and doesn’t cause too much of a shock. Important for prices, 78% of Chinese financial assets placed in the sector.

Finally, the 2023 budget should introduce slightly more budgetary support, especially for municipalities lacking resources related to real estate activities.

The year 2023 promises to be decisive for China, which wants to turn the page of zero Covid and its disastrous consequences. The uncertainty surrounding healthcare governance (for example, the general uncertainty over the number of deaths in recent weeks), however, suggests that transparency is still lacking in the country, which may not reassure investors and has declined over three years. glass and under restrictions. Reversal of the demographic cycle, acceleration allocation technology, the recovery of the real estate sector and the distrust of households that no longer consume are structural issues that China is aware of but does not know how to provide solutions to, or does not yet know.

1 China’s GDP Won’t Overtake US ( China’s economy won’t overtake US until 2060, if ever | Financial Times (

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