Disclaimer

by clicking a geography button, you agree to abide by terms and conditions listed herein.

China Economy

Home Economies China Economy...

China is the second largest economy in the world and is now considered an upper-middle-income nation. Since opening up and reforming its economy in 1978, China’s gross domestic product (GDP) has steadily grown at an average of over 9% annually.

However, China’s economic growth has slowed over the past few years due to various factors, including falling productivity, diminishing returns to investment, declining labour force growth and the Covid-19 pandemic.

Due to the outbreak, China’s economy increased by only 2% in 2020, its lowest annual growth rate in 45 years. In 2021, China was able to bring its lockdown-affected markets back to life and recorded a GDP growth of 8.1% year on year to $18 tn, up from $15.42 tn in 2020.

The rate of growth recorded in 2021 was the fastest in over a decade and was far higher than the government’s aim of 6%.


China GDP Full Year Growth Rate (in %)

 

Asian Market Insights

Exclusive news, analyses and opinion on Asian economies and financial markets

Asian Market Insights

Exklusive News, Analysen und Meinungen zu den asiatischen Finanzmärkten

Yet, in 2022, economic growth decelerated, with China’s real GDP expanding by 2.99%. For 2023, the government has targeted an economic growth rate of 5%.

Meanwhile, the International Monetary Fund (IMF) anticipates China’s GDP to grow by 5.4% this year, as per the latest data  provided by IMF in November. Additionally, the IMF expects economic growth to reach 4.6% in 2024.


China Unemployment Rate (in %)

Moreover, the average urban employment rate throughout the first three quarters of 2023 stood at 5.3%. Nonetheless, it did show a decline in September, reaching 5%, and maintained that level in October.

In 2023, the Chinese workforce is anticipated to welcome a record-breaking number of new college graduates, totaling 11.58 million individuals. This figure surpasses the 2022 count by 820,000.

Currency and Central Bank

The Chinese currency is officially named Renminbi, which means “people’s currency,” in Chinese, but is more commonly known worldwide as the yuan.

In September 2023, the yuan reached its lowest point against the dollar in nearly 16 years. The primary factor behind this decline was the expanding gap in interest rates between China and the United States.


China Inflation (in %)

 

While inflation has soared in the US and Europe, the consumer price index in China has remained dampened due to weak domestic demand. The IMF expects consumer prices in the country to rise by 0.7% in 2023 and 1.7% in 2024.

China’s central bank, the People’s Bank of China (PBOC), kept monetary policy relatively loose so far, while other major central banks have tightened. In September, the People’s Bank of China (PBOC) implemented its second reduction in the Reserve Requirement Ratio (RRR) in 2023, aiming to enhance liquidity and bolster economic recovery.

Industry and Trade

Manufacturing and agriculture remain the biggest sectors in China’s highly diversified economy but its services sector has become its biggest GDP contributor and job creator in the past few years.

Services’ share is more than half of the total GDP and it employs almost half of the country’s workforce. The largest contributors to China’s GDP remain industry, wholesale and retail trade, financial intermediation and agriculture. Real estate and construction also form a huge chunk of the economy.

The low labour cost in China has made it one of the most preferred destinations in terms of manufacturing outsourcing. Foreign capital is used in more than half of the exports made by Chinese companies.

China is also one of the largest producers and consumers of agricultural products globally. While only 15% of the country’s soil is arable, it is still the leading producer of cereals, rice, cotton, potatoes and tea in the world.

In 2022, the country’s leading exports were dominated by phone devices, including smartphones, computers, electronic integrated circuits, solar power diodes, and semiconductors, followed by electric storage devices. Simultaneously, major imports included electronic integrated circuits, crude oil, iron ore, natural gas, and soybeans, among other items.

The US, Hong Kong, Japan, South Korea, Vietnam, India and the Netherlands are China’s main trade partners.

   China Balance of Trade

 

Survey and Rankings

In terms of economic freedom, the Heritage Foundation ranked the China economy at 154 in its 2023 index among 184 countries worldwide. China’s economic freedom score remains constant at 48.3, mirroring the previous year’s figure but falling considerably below both global and regional averages.

Heritage Foundation opines that the susceptibility of the rule of law to political influence and Communist Party directives, coupled with widespread corruption, contributes to this assessment.

Stock Exchanges and Capital Markets

Investing in Chinese stocks was historically off-limits to foreign investors, but the market has slowly opened up as the government continued to loosen regulatory requirements.

China has two stock exchanges, the Shanghai Stock Exchange (SSE) and the Shenzhen Stock Exchange (SZSE). In these exchanges, companies incorporated in the country may issue A-shares, B-shares, and H-shares.

Onshore A-shares and B-shares were previously restricted from foreign investors, but the Chinese government has launched various programs to allow them to participate in the onshore market.

Foreign investors looking to invest in Chinese stocks may do so through an exchange-traded fund (ETF) tracking one of the major indices, such as the SSE Composite Index and the SZSE Component Index. They may also use an actively managed mutual fund.

Bond Market

China’s domestic bond market is the second largest in the world, with a depository balance over 150 tn yuan ($21.07 tn).  Since 2016, when the market was opened to foreign investors, interest in China’s onshore bond market has steadily increased.

Foreign institutions’ net purchases of Chinese bonds have exceeded 1 tn yuan (139.41 bn) in 2023, with their increased holdings estimated to have touched 250 billion yuan ($34.85 bn) in November, as per the country’s central bank.

Real Estate Market

China’s real estate market has steadily grown alongside the country’s economic progress.

However, the growth in the property market slowed down since June 2021, as developers including real estate giants like Evergrande, Kaisa showed signs of financial distress, after regulators stepped up their deleveraging campaign.

Since the summer of 2020, when regulators stepped in to cut excess leverage, the property sector has tumbled, causing several builders to default on their debts and face challenges in completing projects, resulting more recently in homebuyers threatening to stop making payments.

As per the National Bureau of Statistics in China, property investment witnessed a 9.1% decline in the first nine months of 2023 compared to the same period a year ago. Furthermore, home prices in major Chinese cities experienced their fourth consecutive monthly decline in October, marking the most substantial drop in nearly nine years.


China Housing Index (in %)

 

Source of charts: tradingeconomics.com

Key Growth Indicators

2024 Projected real GDP (% Change) : 4.2
2024 Projected Consumer Prices (% Change): 1.7
Country Population: 1,411.397 million
IMF, as of Oktober 2023

Country Updates

Indonesian presidential election: what comes next for the economy

0
Ex-general Prabowo claims to be the winner of the Indonesian presidential elections; he paired with the eldest son of outgoi ...
Hong Kong IPO market set for a rebound in 2024?

Hong Kong IPO market set for a rebound in 2024?

0
According to experts, the Hong Kong IPO market is poised for a rebound in 2024 backed by better regulatory norms and improve ...

Liquidation order for China Evergrande – what does it mean?

0
The Hong Kong court ordered liquidation of China Evergrande after the developer failed to provide a restructuring plan for i ...

Country Investments

China bond funds for portfolio diversification

0
China’s onshore bond market has grown to the world’s second-largest after the US. It has a low correlation with other bo ...

Finding value in Asia’s technology sector

0
We have compiled a list of three investment options within Asia's technology sector, featuring two mutual funds and an ETF.

Extracting gains from the Australian mining industry

0
The Australian mining industry is standing at the cusp of significant growth. We identify the top three prospects to capital ...