China Economic Growth 2023

Quick glance

• The Chinese economy slows down in 2023.
• The Chinese economy is facing a real estate crisis.
• Rating agency Fitch lowered the estimated growth rate of China for 2023 from 5.6% to 4.8%.

China Economic Growth 2023

China’s economic growth has become fragile in 2023. The demand for Chinese goods has also decreased drastically. The unemployment rate hit a record high of 20%. China economic growth rate from 2021 to 2022 was only 2.99%, which is almost equal to the growth rate of 2.24% during the COVID pandemic.

China is the world’s second largest economy in terms of nominal GDP after the USA. In terms of Purchasing Power Parity (PPP), the Chinese economy stands first in the world economy since 2014. 

China is the hub of manufactured goods. It is the main contributor to the supply chain of Conductors and Semiconductors. 

But now the situation is changing. China is facing the Real Estate Crisis. China Economic growth is falling at a rapid pace. Chinese banks may face $350 billion loss from real estate crisis.

China dropped its GDP target of 5.5% in 2022 as this country is working on the Strict Zero-COVID Policy. The value of yuan is decreasing as compared to the US Dollar due to Real Estate Crisis. 

• According to the IMF,” China will achieve a real GDP growth rate of 4.4% in 2022.” 

• The World Bank estimated the GDP growth rate of China for 2023 at about 4.3%.

• Rating agency Fitch lowered the estimated growth rate of China for 2023 from 5.6% to 4.8%.

• S&P also downgraded the GDP growth rate of China for 2023 from 5.5 percent to 5.2 percent.

What is the Real Estate Crisis?

The real estate sector is one of the most important pillars of the Chinese economy. This sector contributed 25 to 30% of Chinese GDP. But now this sector is struggling to survive.

In China, big housing developers like the embattled Evergrande and Country Garden have racked up huge amounts of debt. The total loss for the Evergrande company is about $80 billion for 2021–2022. On the other hand, Country Garden had a total loss of $6.7 billion in the first half of 2023.

The construction work of houses is stalled. The companies failed to get the money from the selling of new houses. People have stopped paying their installments to these companies.

The Reasons Responsible for the Real Estate Crisis–

The corona pandemic hit all the global economies. So, mostly all countries adopted lockdown as the ultimate solution. The Chinese Government led by Xi Jinping adopted the Zero-Covid Policy to curb the cases of the omicron variant of Corona. This Zero-Covid Policy has an adverse effect on real estate market in China which is explained as under:

1. The income of its citizens has been reduced a lot as economic activities are at a halt. They are not able to buy villas and flats. It is estimated that there is a 60% decline in house sales in China. 

2. The prices of homes have been falling since 2020 because of the pandemic. No one is interested in investing in homes whose prices are falling. 

3. The construction work of houses is stalled as the companies failed to get the money from the selling of new houses. Some Real Estate companies are selling new houses to farmers in return for watermelon, wheat and garlic as an installment. They are thinking that by exporting these products to the global market they will fulfill their need for money to complete the work. 

4. The clients of these real estate companies refused to pay the monthly installments as they failed to give possession of these uncompleted villas and flats. 

China’s Banking Regulatory Commission is asking banks to give loans to real estate companies in order to provide financial support so that they can complete their projects. But the clients of banks are refusing to repay the amount of loans because of the cash crunch.

Bank Run 

A bank run is a condition in which a large number of depositors withdraw their money from the banks as they lose belief and trust in the banking system. 

Similar conditions are found in China. Because of the above-explained Real Estate Crisis people are in fear that the banks may go bankrupt and they will experience a financial crisis as the US did in 2008. They are standing in queues outside the banks to withdraw their money. 

Thousands of investors are protesting in front of the Bank of Henan Province. The police is crack-downing the protesters by using violent actions. They are using tanks on roads to stop the protestors from entering the banks. 

Effect of the Chinese Real Estate Crisis on India and world economies;

Experts are predicting that there will be no direct effect of this Real Estate Crisis on India, as Indian investors rarely invest in the bonds of real estate companies of the Chinese market. 

However, when this housing bubble bursts, then it may affect the economies of the rest of the world. 

China has invested a lot of trillions in developing countries in roads, bridges, power projects and highways under the Belt and Road Initiative. These projects may be left unfinished in the future.

In short, the real estate crisis was already predicted last year when Evergrande, the largest developer company of China, declared bankruptcy. The Chinese Government, however, succeeded in hiding the truth and assured the investors that they would control the situation.