Lending Association

No significant improvement for Chinese economy

In 2023, China’s economy remained stagnant and grappled with deflation at both consumer and producer levels. The latest trade data showed a slight increase in exports and imports, but there were no signs of significant improvement.

China’s National Bureau of Statistics (NBS) reported that consumer prices continued to decline for the third consecutive month in December, with factory-gate prices also experiencing a prolonged slide.

The Consumer Price Index (CPI) fell by 0.3% in December compared to the previous year and increased by 0.1% month-on-month, according to the NBS. November had seen a 0.5% drop in both annual and monthly terms, marking the sharpest decline in three years. While the December figure was slightly better than the market’s expectation of a 0.4% contraction, any notable improvement was debatable.

In December, prices for food, tobacco, and alcohol dropped by 2% year-on-year, a slight improvement from November’s 2.2% decline. Livestock and meat prices also fell at a slower rate, with a 15.9% decrease compared to the previous 19.2% drop, as pork prices eased from 31.8% to 26.1%.

This marginal improvement in CPI was attributed to the reduction in pork prices, as pork is the largest component of the food segment of the index, which, in turn, is the most substantial component of the overall index. Outside the food sector, there was some improvement, with higher prices observed in other products and services, education, culture, entertainment, and clothing compared to the previous year.

For the entire year of 2023, the CPI rose by only 0.2%, missing the official target of around 3%. This indicated that actual inflation fell short of annual targets for the 12th consecutive year.

Producer prices decreased by an annual rate of 2.7%, down from 3% the previous month but slightly worse than the expected 2.6% decline. Over the full year of 2023, China’s factory gate prices fell by 3%, reversing the 4.1% rise seen in 2022. This confirmed that deflation had a significant hold on the economy despite expectations of a strong rebound from the COVID-19 lockdowns.

The trade data for December and the entire year of 2023 painted a similarly bleak picture. Although China’s exports in December exceeded expectations, it failed to compensate for the overall decline witnessed throughout the year. Exports rose by 2.3% year-on-year in US dollar terms, surpassing the market forecast of a 1.7% increase and November’s 0.5% improvement.

Imports in December increased by 0.2% year-on-year, slightly lower than the anticipated 0.3% rise by analysts but a considerable improvement from the 0.6% contraction in the previous month. However, for the year 2023, exports fell by 4.6%, and imports declined by 5.5%.

In summary, China’s economic recovery remained inconsistent in 2023, despite some reports indicating a positive turnaround. Private-sector surveys suggesting faster growth contrasted with official activity surveys showing a shrinking trend. The coming week will bring crucial economic data, including investment, retail sales, industrial output for December, as well as figures for the entire year and GDP for the fourth quarter, with interest rate decisions scheduled for the following two Mondays.