Macroscope | Can China spend its way back to glory days of economic growth?

Are the glory days over for China’s growth? It’s not just a recent slump in China’s factory confidence or lacklustre consumer demand that is the problem. It’s how to keep the world’s second-largest economy growing at a rate which exceeds expectations and defies the longer-term drift to slower growth, a problem which many mature economies are having to contend with. China’s post-Covid recovery could be running out of steam, at a critical time when the global economy is facing greater challenges.

It should be a time when Beijing’s dual circulation strategy comes into its own and domestic drivers compensate for any shortfalls on the international side. The risk is that Beijing’s growth target of around 5 per cent may be a bridge too far this year and that a gross domestic product range of 3 to 4 per cent may be the prevailing trend in the next five years. Beijing needs to pull out all the policy stops to prevent this. China can do better.

Considering the high expectations for recovery after the easing of zero-Covid controls last December, the economic performance has so far been underwhelming. Year-on-year GDP growth jumped to 4.5 per cent in the first three months of 2023 from 2.9 per cent in the final quarter of 2022, but this should have been better considering the pent-up demand in the economy after last year’s tough trading conditions.

Last year, the economy only added 3 per cent, missing Beijing’s 2022 goal of around 5.5 per cent. The uncertain global backdrop and indifferent domestic conditions mean there’s a lot of catching up to do.