China’s Xi Jinping Warns of Economic ‘Winds and Rains’ as Recovery Disappoints
Leader’s remarks came as data showed factory and service sectors continuing to contract to close out 2023
Chinese leader Xi Jinping urged his countrymen to brace for more economic challenges in the year ahead, sounding a cautious note as a string of weak readings highlights the many headwinds facing the world’s second-largest economy.
“On the path ahead, winds and rains are the norm,” Xi said in a New Year’s Eve speech to the nation on Sunday, promising more efforts to shore up growth and address concerns over jobs and the cost of living. “Some companies are facing business pressures; some people are running into difficulties finding jobs and in their daily living.”
Xi underscored the importance of the economy to the country’s political priorities, noting that in 2024—which marks the 75th anniversary of the Communist victory—China must “further boost confidence in development, and enhance economic vitality.”
Xi’s remarks came hours after Beijing published data that offered fresh signs of weakness in the Chinese economy, piling pressure on the government to take bold new steps to fire up growth in the coming year.
Official surveys released on Sunday suggest factory activity slid deeper into contraction in December, owing to thin order books at home and abroad, while the services sector struggled as consumers kept a tight leash on spending.
Construction fared better, aided by a government push on infrastructure, but overall the latest readings point to a soggy end to the year for the world’s second-largest economy after a run of disappointing data on prices, retail sales and private-sector investment.
After a turbulent year for growth, China’s top leaders have signaled that more help is coming for the economy, with pledges of new fiscal stimulus and supportive central-bank policy in the months ahead.
China’s big banks in recent days announced planned cuts to deposit rates for savers, paving the way for potential reductions to loan rates for households and businesses.
Still, officials have telegraphed that stimulus will be measured rather than aggressive, reflecting caution over already-high levels of debt as the economy contends with a drawn-out real-estate crunch and a global economy beset by war and slowing growth in the U.S. and Europe.
“What comes next? Another year of muddling through,” Rory Green, head of Asia economics at GlobalData.TSLombard, predicted in a report on the year ahead for China’s economy. “Growth is not going to collapse, but neither will it reaccelerate.”
China’s official purchasing managers index for the manufacturing sector declined to 49 in December, from 49.4 in November, the National Bureau of Statistics said Sunday, marking the third straight month in which the reading has languished below 50—the mark that separates an expansion in activity from contraction.
The result missed the forecast of 49.8 estimated from a Wall Street Journal poll of economists. New orders at home and abroad slumped deeper into contraction, while a measure of companies’ appetite for hiring new workers fell to 47.9 from November’s 48.1, indicating China’s powerhouse factory sector is feeling the pinch from a slowing global economy as well as sluggish spending at home.
A similar gauge of activity in China’s services sector was unchanged at 49.3, suggesting that consumers remained wary of spending in the midst of anxiety over jobs and the property market.
At the beginning of the year, optimism was high that 2023 would see a Chinese economy roaring back to life after stringent lockdowns to quell Covid-19 outbreaks hammered growth in 2022.
The expectation was that a rebound in China would power the global economy as the U.S. slowed under pressure from the Federal Reserve’s efforts to contain inflation with sharp increases in interest rates.
In the end, U.S. consumers flush with savings helped to hold up U.S. growth despite the rise in borrowing costs, while China’s performance underwhelmed.
A hoped-for consumer boom in China never really took off. Turmoil in the real-estate sector—visible in acres of unfinished apartment blocks and stricken developers—sapped consumers’ appetite for spending, with households opting to sock away savings instead. Chinese export growth slowed along with Western consumers’ desire for more goods after a splurge during the pandemic. Real-estate investment contracted sharply.
The property market remains in a deep slump. New home sales at China’s largest developers fell 35% in December from a year ago, according to private data released on Sunday by China Real Estate Information Corp.
The country’s top 100 developers sold the equivalent of $63.4 billion worth of homes during the final month of 2023, according to CRIC. That was 16% higher than November’s total, but December sales are traditionally higher as developers try to book as much revenue as they can before closing out the year.
The largest developers sold $760 billion worth of homes in 2023, down 16% from the previous year. The total was less than half what the top property companies sold in 2021, according to CRIC.
One stark sign of China’s difficult year is a high rate of youth unemployment, which exceeded 21% in June before the statistics agency said it would stop publishing the data.
Another sign is deflation. Both consumer and producer prices were lower in November than a year earlier. The weakness in price growth in China contrasts sharply with the painful inflation experienced in most of the rest of the world until recently.
Still, China’s economy is expected to expand by around 5% in 2023, a better performance than in 2022 but slower than the growth rates it typically notched in the years before Covid-19.
Many economists have penciled in slightly weaker forecasts for 2024 because the economy benefited in 2023 from a favorable comparison with 2022, when lockdowns in major cities including Shanghai and Shenzhen hurt growth.
The International Monetary Fund, for instance, expects growth in China to slow to 4.6% in 2024, from a projected 5.4%.
Authorities have so far opted for a broad but piecemeal approach to stimulus, characterized by modest cuts to interest rates, looser restrictions on property purchases in some larger cities and other small steps to put a floor under growth.
The approach reflects the wariness of China’s Communist leadership regarding large-scale stimulus policies since a blowout package in 2008 fueled a property bubble. Xi has spoken of his aversion to Western-style handouts to juice demand, preferring instead to focus on building roads and factories.
In his Sunday speech, Xi signaled that he will stay the course—pledging to press ahead with “Chinese-style modernization,” a slogan that encapsulates his vision of state-led economic development.
He also signaled more government attention to youth employment, as well as concerns over the costs of child-rearing and elderly care.
“Everyone is very busy and the stresses of working and living are very great,” Xi said. “We need to create a warm and harmonious social atmosphere…and create convenient and comfortable living conditions.”