Half fire, half seawater: a panorama of China's economy in 2023

On January 17, the National Bureau of Statistics announced the main indicators of the national economy for 2023. Previously, the central bank released financial data, and customs released import and export data. In addition to the government revenue and expenditure data of the Ministry of Finance, the data on various aspects of the national economy are basically made public.

It is difficult to understand the whole picture of the national economy by observing individual indicators, or through indicators in a certain aspect. It is also difficult to build a clear picture of the macroeconomy based on a single indicator. Today, Saburo uses the overall data of the national economy to draw a three-dimensional and colorful panorama of China's national economy in 2023. However, this picture looks half fire, half seawater.

1. GDP increased by 5.2 per cent at comparable prices and 4.6 per cent at current prices.

Gross domestic product (GDP) in 2023 will be 1260582 billion yuan, an increase of 5.2% over the previous year at constant prices. Among them, in terms of different industries, the primary industry increased by 4.1 percent, the secondary industry increased by 4.7 percent, and the tertiary industry increased by 5.8 percent.

In terms of quarters, GDP grew by 4.5% year-on-year in the first quarter, 6.3% in the second quarter, 4.9% in the third quarter and 5.2% in the fourth quarter.

In January 2023, the National Bureau of Statistics released that the GDP for 2022 was 121 trillion yuan. However, a month ago, the National Bureau of Statistics finally revised it to 1204724 billion yuan, which is 548.3 billion yuan less than the preliminary calculation.

Thus, if compared with the first published GDP for 2022, GDP at comparable prices in 2023 will grow by 4.2%. If compared with the revised figures, GDP at comparable prices will grow by 4.6% in 2023.

In the first year after the lockdown was lifted, GDP growth showed very clear characteristics of restorative growth. That is, growth is achieved from a low base.

In terms of industries, the tertiary industry, which had the lowest growth rate last year, at only 2.3 percent, grew the most this year, with an increase of 5.8 percent.

In terms of quarters, the lockdown was the most severe in the second and fourth quarters of last year, with GDP growth rates of only 0.4% and 2.9% respectively, while in the second and fourth quarters of this year, they increased by 6.3% and 5.2% respectively, significantly higher than the first and third quarters.

Second, the increase of 6.43 yuan of social financing in exchange for 1 yuan of GDP output.

If a low base is one of the forces behind GDP growth of more than 5 in 2023, ultra-strong monetary easing and debt expansion are the core strengths of GDP in 2023.

In 2023, the central bank's money printing machine will run at high speed, and the broad money supply M2 in circulation will increase from 266.43 trillion at the end of last year to 292.27 trillion, an increase of 9.7%, more than double the 4.6% GDP growth rate at current prices.

By the end of 2023, the stock of social financing reached 378.09 trillion yuan, an increase of 9.8%. The new social financing was 35.59 trillion yuan, an increase of 11.2 percent, 6.38 times that of the new GDP of 5.58 trillion yuan that year. It is equivalent to an increase of 1 yuan in GDP, which requires an increase of 6.43 yuan in social financing. The marginal effect of debt-driven economic growth is getting lower and lower, just as the environment in the Kuznets curve constrains economic growth. In other words, you can continue to push up the leverage ratio to grow the economy, but the debt trap will get deeper and deeper, and the debt risk will increase.

At the end of 2023, we reached a record 300% macro leverage, up 14.2% percentage points from a year ago and 40 percentage points ahead of the U.S.

Third, the growth rate of fixed asset investment has hit a new low after 2020, and it seems that there is spare strength but it can't run.

In 2023, the national investment in fixed assets will be 50.3 trillion yuan, an increase of 3% over the previous year. In the last 20 years, this growth rate has been only higher than the 2.7% increase in 2020, the outbreak of the pandemic, and at least more than 40% of the pace in other years. In the face of 9.7% M2 growth, 11.2% of new social financing, 34.8% of new government bonds, and the government's determination to promote economic recovery through investment, it can be confirmed that fixed asset investment is very tired.

There are also extremely serious structural distortions in fixed asset investment. From the perspective of industry, the investment in the primary industry fell by 0.1%, the investment in the tertiary industry by 0.4%, and the investment in the secondary industry increased by 9.0%, of which industrial investment increased by 9.0%.

From the perspective of sources of funds, private investment in fixed assets fell by 0.4 percent, of which investment in fixed assets by Hong Kong, Macao and Taiwan enterprises fell by 2.7 percent. Investment growth is entirely dependent on the government and state-owned enterprises, and the structure is distorted.

Fourth, basic demand has basically recovered, and improvement demand continues to be sluggish.

In 2023, the recovery of domestic demand will be uneven, which is highlighted by the basic recovery of basic demand, the continued sluggishness of improved demand, and the rapid growth of products and services in 2022 due to the low base effect due to the lockdown and control of consumption scenarios will not be much in normal business last year.

In 2023, the total retail sales of consumer goods will be 47.15 trillion yuan, an increase of 7.2% over the previous year. Online retail sales were 14.43 trillion yuan, an increase of 11.0% over the previous year. Among them, the retail sales of services increased by 20.0% over the previous year, the revenue of catering increased by 20.4%, and the retail sales of sports and entertainment goods increased by 11.3%. These are all categories where consumption scenarios will be limited in 2022.

Retail sales of goods increased by 5.8%. Among them, grains, oils and foods increased by 5.2%, beverages increased by 3.2%, and daily necessities increased by 2.7%, all of which are products that can be sold normally in 2022, and the growth rate is relatively normal.

The sales of commercial housing fell by 12.5%, the sales of building and decoration materials fell by 7.8%, the sales of cultural and office supplies decreased by 6.1%, and the sales of household appliances and audio-visual equipment increased by 0.5%.

It should be noted that in 2023, the sales area of commercial housing in the country will be 1.117 billion square meters, and the sales of commercial housing will be 11.66 trillion yuan. According to the National Bureau of Statistics, the sales area of commercial buildings decreased by 8.5 percent, and the sales of commercial buildings decreased by 6.5 percent. However, if we directly compare this year's sales area and sales with the area and amount announced last year, they will decrease by 17.7% and 12.5% respectively, which is close to the data of 16.5% year-on-year year-on-year decrease in the cumulative sales amount of the top 100 real estate companies in 2023 from January to December.

Fifth, the import and export of goods fell more than expected, and the trade surplus shrank by 3.4, dragging down the economic growth rate.

In 2023, although the exports of electric vehicles, lithium-ion batteries, and solar cells hit a record high, they will increase by 29.9% year-on-year, becoming a new engine of economic growth.

However, the country's merchandise exports of $3.38 trillion fell by 4.6% from 2022 during the pandemic, and the decline of 1.8% was more negative than expected.

The country's imports in 2023 will be 2.56 trillion US dollars, down 5.5% from 2022 and significantly larger than the 1.8% decline expected by the market.

The sluggish exports are mainly due to the diversification of investment and supply chain diversification in Europe and the United States, which has had a significant impact on China's commodity exports. In 2023, China's exports to the United States fell by 10.2% year-on-year, and exports to the European Union fell by 13.1%.

In addition, due to the continued interest rate hikes to suppress inflation, ASEAN's exports to Europe and the United States have fallen, which has also affected our exports to ASEAN, which will decline by 5% year-on-year in 2023.

The reasons for the sluggish import are: first, the downgrade of domestic residents' consumption and the contraction of demand for imported goods;

Second, the demand for imported raw materials and spare parts for enterprise production has decreased; third, the sharp drop in energy prices has led to a decrease in the amount of imports.

In 2023, the mainland's trade surplus will be US$858.7 billion, down 3.5% year-on-year. The trade surplus is the net export of GDP. The decline in net exports not only means that our foreign exchange balance through imports and exports has decreased, adding depreciation pressure to the RMB exchange rate, but also means that the contribution of net exports to GDP is also decreasing, dragging down the economic growth rate.

6. Per capita disposable income increased by 6.3 percent, but wealth shrank across the board, and residents actually felt poor.

The per capita disposable income of residents nationwide was 39,218 yuan, an increase of 6.3 percent over the previous year, and the median per capita disposable income of residents nationwide was 33,036 yuan, an increase of 5.3 percent over the previous year. The per capita consumption expenditure of residents nationwide was 26,796 yuan, an increase of 9.2 percent over the previous year.

These data show that:

First, household income outperformed economic growth, with GDP at current prices increasing by 4.6% that year, household income increasing by 1.7 percentage points, and residents' share of GDP increasing from 43.2% in 2022 to 43.9%.

Second, the income gap between residents is widening. Median income growth was one percentage point lower than the average, implying that high-income growth outweighed low-income growth.

Third, the National Bureau of Statistics said that residents' property income increased by 2.9% in 2023. However, in 2023, the CSI 300 stock index fell by 11.4% from 3871.63 at the end of 2022 to 3431.11, the average annual price of RMB against the US dollar fell from 6.7222 to 7.0764, a decrease of 5%, and the 5-year deposit rate fell by 17% from the end of 2022 after three cuts, and the price of second-hand housing in Baicheng fell by 3.5% in December 2023 compared with the end of the previous year Residential rental prices in the key 50 cities fell 0.3% year-on-year in December. On the one hand, it is impossible for residents' property income to grow, and on the other hand, residents' wealth has shrunk, which has also seriously weakened residents' sense of economic growth.

7. The price index, which measures the relationship between supply and demand and economic heat, continues to fall, which means that demand is insufficient and the situation of relative oversupply is becoming more serious.

Under normal circumstances, the central bank lowers interest rates, which will stimulate consumption and push prices up, while lowering interest rates will suppress consumption and cause prices to fall.

For example, the Fed began to increase its policy rate from 0%-0.25% to 5.25%-5.5% in March 2022, and the CPI in the United States fell from an 8.5% increase in March 2022 to 3.4% in December 2023.

The central bank of the mainland began to cut the reserve requirement ratio and interest rates and monetary easing in December 2021, but with the central bank's interest rate cut, prices not only did not rise due to the stimulus of monetary easing, but fell with it.

The central bank lowered the 1-year and 5-year loan prime rates (LPR) to 3.45% and 4.2% in December 2023 from 3.85% and 4.65% in November 2021.

In January 2022, our CPI and PPI rose by 0.9% and 9.1% year-on-year, respectively, in January 2023, our CPI rose by 2.1% but the PPI fell by 0.8%, and in December 2023, the CPI fell by 0.3% year-on-year, marking the third consecutive month of year-on-year CPI decline. The PPI fell 2.7% year-on-year in December, and the PPI fell for 15 consecutive months.

In our economic practice, there has been an abnormal situation in which prices have fallen in line with the central bank's policy interest rate cut, which stems from the serious mismatch between our planned capital elements and market-oriented capital demand, and monetary easing has only stimulated investment and supply, but has failed to stimulate demand, thus increasing the degree of oversupply and leading to a decline in prices.

8. The shrinkage of the population in the second year, the disappearance of the demographic dividend and the early arrival of an aging society have put forward new requirements for our macroeconomic policies.

In 2023, our total population decreased by 2.08 million from 1,411.75 million in the previous year to 1,409.67 million, an increase of 144.7% compared to 850,000 in 2022. Among them, the number of births decreased from 10.62 million in 2021 and 9.56 million in 2022 to 9.02 million, a decrease of 5.6% from the previous year and a decrease of 15.1% from 2021.

There is no doubt that we have entered a phase of shrinking population size with low fertility. For at least the next 50 years, we will face smaller and smaller populations and fewer and fewer teenagers, as well as more and more elderly people. The shrinking population and aging society will have a drastic impact on our existing economic policies and economic structure.

The reduction in the size of the population means that our already excess capacity will be exacerbated. It also means that the social welfare system needs to be overhauled.

[Author: Xu Sanlang]