China Economy Resumes Growth: The Government Plans Further Action

As China’s epidemic prevention and control measures loosen, China’s economy is beginning to bounce back. The market resumption is evidenced by several major economic indicators. 

Major Economic Indicators

1. Purchasing Managers’ Index (PMI)

The complex PMI broke through the critical 50-point mark in January 2023 and has achieved continuous growth since then. In fact, the PMI stood at 52.9 in January and then increased to 56.4 and 57 in February and March, respectively.

The PMI is one of the crucial indicators that measure market confidence laterally, i.e., whether procurement managers decide to purchase goods for future production or operations and the quantities they decide to purchase.

2. Producer Price Index (PPI) and Consumer Price Index (CPI)

The PPI has continued its downward trend, decreasing from -0.7% in December 2022 to -0.8% in January 2023 and -1.4% in February. On the other hand, the CPI rose by 2.1% YoY in January, with food prices rising by 6.2%, non-food prices by 1.2%, consumer goods prices by 2.8%, and service prices by 1.0%.

However, with the conclusion of the Chinese Spring Festival, the growth in food prices has slowed down. In February, the CPI growth rate decreased by 0.5% MoM but still showed a YoY increase of 1%.

3. Industrial Added Values

In January and February, Industrial Added Values above that designated size increased by 2.4% YoY (excluding price factors), with a MoM increase of 0.12%.

While the momentum of short-term rebound is apparent, the insufficient demand and reduced expectations resulting from epidemic prevention in the past years are expected to undergo significant changes.

2023 Government Report

The Government Report published on March 5^th this year sets the target GDP growth for 2023 at about 5%, which is at the lower limit of the market forecast range.

The National Development and Reform Commission states that this target is based on the 20th National Congress of the Communist Party of China, which made it clear that China must reach the level of moderately developed countries by 2035, which means China needs to maintain reasonable economic growth while improving quality and efficiency to meet the goal. The target also reflects the requirements of steady growth with stable employment and prices to improve people’s livelihood.

In the 2023 Government Report, the following several working priorities can be highlighted from the perspective of economic & social policy.

• Accelerate the modernization of the industrial system to speed up the digitalization of traditional industries and small and medium-sized enterprises, making them higher-end, smarter, and more eco-friendly.
• Intensify efforts to attract and utilize foreign investment by expanding market access, continuing to open the modern services sector, ensuring national treatment for foreign-funded companies, improving services for foreign-funded companies, and facilitating the launch of landmark foreign-funded projects.
• Expect continuous progress in housing and medical care. More quality medical resources will be channeled toward the community level and more evenly distributed among regions.
• Stabilize grain output and advance rural revitalization. In addition to keeping total grain acreage at a stable level, China will also invigorate the seed industry and support the development of agricultural science, technology, and equipment.
• Continue the transition to green development by advancing energy conservation and carbon reduction in key areas and intensifying pollution prevention and control.
• Expand domestic demand. The report said the incomes of urban and rural residents would be boosted through multiple channels, and priority would be given to the recovery and expansion of consumption.

The working priority of attracting and utilizing foreign investment has gained significant attention, with China’s actual use of foreign capital in 2022 amounting to 1,232.68 billion RMB, equivalent to 189.13 billion USD, a YoY increase of 6.3%.

In March, a few leaders of big beasts, such as Apple CEO Tim Cook and Executive Chairman Jay Y. Lee, visited China after three years of strict zero-COVID policies while other foreign giants expressed their intentions to increase their business in China. For example, McDonald’s plans to open another 900 stores, Starbucks plans to add 3,000 stores, and Tyson and Homer have also stated their intentions to increase their investment in China.

These plans show the confidence of foreign investors in China, despite the downward pressure on the global economy.

Measures Adopted to Attract and Utilize Foreign Investments

“We need to improve the business environment significantly!” said Mr. Long Guoqiang, Deputy Director of the Development Research Center of the State Council.

The government has implemented several practical measures to attract and utilize foreign investments to instill greater confidence.

1. On January 1, 2023, the ‘Catalogue of Industries Encouraging Foreign Investment (2022 Edition)’ officially took effect, with a total of 1,474 entries, which added 239 entries and modified 167 entries compared to the 2020 Edition. Industries listed in the Catalogue can enjoy preferential policies such as tariff reduction and the preferential supply of land, etc.
2. The Central Economic Work Conference in 2023 proposed implementing national treatment for foreign-funded enterprises, ensuring their participation in government procurement and bidding, and strengthening the protection of intellectual property rights and the legitimate rights and interests of foreign investment.
3. To expand the opening-up of the service industry to foreign investments, the government will implement comprehensive pilot projects in Shenyang, Nanjing, Hangzhou, Wuhan, and Guangzhou. Previously, China launched the same projects in five provinces and cities, including Beijing, Tianjin, Shanghai, Hainan, and Chongqing. Nearly 70 policy innovations have been implemented in the areas such as scientific R&D and financial services in Beijing, and 151 differentiated pilot measures in the rest four provinces and cities to accelerate the exploration of opening up the service industry.
4. Shanghai is being positioned as the global asset management center, and the Shanghai government has been making efforts to introduce new policies for years. In the “Action Plan for Promoting Confidence, Expanding Demand, Stabilizing Growth, and Promoting Development” issued by the Shanghai Municipal Government in January, it was particularly emphasized that greater efforts should be made to encourage foreign capital enterprises to reinvest profits and guide them to invest more in the industries of advanced manufacturing, modern service, high-tech, energy conservation, and environmental protection. The “Action Plan” also mentioned that maximum convenience for the entry and exit of personnel from foreign-funded enterprises should be provided in international trade and investment negotiation activities. Therefore, Shanghai has also released the “Action Plan for Optimizing the Business Environment Version 6.0”, which is a strong signal of its goal to build an international first-class business environment to serve the entities in the market for development acceleration. Compared with the previous five versions, the “Action Plan V6.0” is more committed to providing a full scale of online services that meet most needs of an enterprise, which will greatly enhance efficiency. Furthermore, the “Action Plan V6.0” particularly highlights establishing synchronous business administrative recognition in the Yangtze River Delta, such as the unified standardization of administrative licensing in the area.

Summary

As the Chinese proverb goes, “A year’s plan starts with spring.”

Based on the figures and policies presented in the first quarter, it is clear that the market is recovering. Additionally, the Chinese government is anticipating the market acceleration and has made preparation accordingly.

Will China’s economy meet expectations at the end of 2023?  We will have to wait and see.