China Economic Update Report
Quarter 3, 2023
In this issue:
China’s GDP grows with 4.9% (YoY) in Q3 2023, surpassing the 4.4% forecasted growth
In the third quarter of 2023, China’s GDP grew 4.9% year-on-year, slowing from 6.3% growth in the previous quarter. However, on a quarter basis, GDP grew 1.3% in Q3, a slight acceleration from the revised 0.5% quarter growth registered in Q2. Q3 data indicates that the full-year growth target of 2023 could possibly be achieved in China.
According to data from the Chinese National Bureau of Statistics, China’s economy grew with 4.9% in Q3 slightly exceeding analysts’ forecasted growth of 4.4%. This contributes to the forecast that China will likely achieve or potentially exceed Beijing’s full-year target of around 5% economic growth in 2023. The 2023 growth target can be achieved if Q4 growth exceeds 4.4%.
The positive outlook from the economic data in Q3 2023 has led international banks to update their 2023 growth outlooks slightly increasing forecasts. The better-than-anticipated data also makes it less likely for the government in China to launch stimulus in Q4, since the overall growth target of 2023 is set to be achieved.
Decline in trade since May follows shortfall in global demand
In September 2023, the total value of exports declined by 6.2% YoY. China’s imports also decreased by 6.2% compared to 2022.
China’s export values in USD terms have been lower than 2022’s values for every month this year since May. The decline in trade is mainly due to the shortfall in global demand for Chinese goods and services.
Trade with the US (China’s largest single-country trading partner) has declined significantly for the first three quarters of the year, with exports falling by 16.4% and imports falling by 6%. This has contributed to the members of the Association of Southeast Asian Nations (ASEAN) recently becoming China’s largest export market, overtaking the US and Europe.
ASEAN is China’s largest Export Market overtaking the US and Europe
Despite the US still being China’s largest trading partner as a single country, the members of the Association of Southeast Asian Nations (ASEAN) have recently overtaken both the US and Europe in becoming China’s largest export market.
The shift is a result of steep drops in exports of Chinese goods to the US and Europe, in combination with the emerging effects of the free trade agreement, Regional Comprehensive Economic Partnership (RCEP), among the Asia-Pacific nations.
Demand for Chinese goods in the US and Europe has decreased throughout the year. This is primarily due to weaker economic growth in these regions where the Federal Reserve and central banks in Europe began raising interest rates in 2022 to cool inflation. Additionally, geopolitical tensions between China and the US have encouraged international firms to move investments out of China and into new regions, further decreasing demand for Chinese exports.
Effecting the growing trend of trade between China and ASEAN is the RCEP which came into effect in January 2022. The RCEP is the first free trade agreement among the largest economies in Asia and is effective between the ten members states of ASEAN, Australia, China, Japan, New Zealand, and Republic of Korea.
There is hope that the RCEP resulting in stronger linkage between Southeast Asia and China will contribute to stabilising global trade during times when demand in the West is weak. This situation is changing where products are made, as parts once made entirely in China are now increasingly being put together in Southeast Asia before being shipped worldwide. As a result, the trade route between the ASEAN countries and China has become crucial for international trade. The result is one of the key trade corridors of the world becoming the one between ASEAN and mainland China.
Southeast Asia is rising as an attractive location for businesses because of its trade deals and affordable workforce, offering a competitive alternative to sourcing exclusively from China. With the RCEP, ASEAN could strengthen its role as a key part of global trade, spreading out global production and potentially resulting in a stronger, more varied system for global business. This new pattern is reshaping economic power in Asia and suggests a subtle redesign of the world’s economic systems, focusing on flexibility and variety.
The Downturn in China’s Property Market
China’s property market, comprising nearly 25% of China’s economic output, is causing a real headache for those in charge of keeping the economy growing. In the first nine months of 2023, investments into property fell by 9.1% from the year before.
Even though policymakers have initiated several stimuli to boost the property market, these efforts haven’t been enough to bolster confidence and revive activity within the market. Despite hope from certain signs of recovery in the beginning of 2023, property sales by floor area fell 19.77% YoY in September. Fixed-asset investment by private firms fell 0.6% in January-September YoY, which highlights the weak private sector confidence. The industry started struggling in 2021 and hasn’t recovered which indicates that China’s approach of keeping the economy strong by focusing on real estate may not be a sustainable future strategy.
This slowdown in the property market isn’t an isolated issue; it affects other areas of business such as construction, manufacturing, and banks that deal with property loans. It also has large ripple effects on countries and businesses globally. How China deals with these property market problems will be important not just for its own future growth, but for the rest of the world’s economy as well.
About this report
This report was compiled with contributions from the team of business experts in our China offices.
ARC Consulting, a division of ARC Group, is an advisory firm specialised in supporting western companies operating in Asia. We are on a mission is to bridge between the business ecosystems of Asia and those in Europe and the US. Our services cover market entry and expansion, production and sourcing, cross-border M&A as well as ESG and operational improvement and compliance.
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