China entered the Year of the Water Rabbit on 22 January. Beijing had relaxed its strict Covid-19 restrictions just under two weeks before this event, which is marked with many private visits and celebrations. Despite continuing high infection figures, millions of people set out early on their journey from the cities so that they would arrive right on time for the New Year festivities with their families. This early surge in travel highlights the spirit of optimism in the Middle Kingdom. After tough years of pandemic-induced deprivations, the re-opening is intended to allow the country to flourish again. The most recent figures on gross domestic product (GDP) indicate that the world's second-largest economy could certainly do with a hefty shove: China’s GDP climbed by just 3.0% in 2022. Apart from 2020, the first year of coronavirus, when the most important emerging economy expanded by only 2.2%, this was the lowest growth rate since 1976.
Beijing had actually set itself a target of about 5.5% for last year. However, the zero covid strategy that the state leadership pursued for a long time blew these plans out of the water. Everything is to get better in 2023. That was also the message spread by China at the recent World Economic Forum in Davos. Vice-premier Liu He is anticipating economic progress, especially from the release of pent-up domestic demand. “If we work hard enough, we are confident that growth will most likely return to its normal trend, and the Chinese economy will see a significant improvement in 2023,” he stated. According to Liu, coronavirus is now under control. “China has passed the peak of infections,” the vice-premier declared in Davos. The top politician did not offer any specific forecast, however, speaking merely of “reasonable economic growth” in this regard. In 2021 China had achieved 8.4% growth in GDP.
Despite all the optimism, though, the economic powerhouse is hardly likely to achieve such a rate in the new year given its recent stutters. Reuters asked a large number of economists for their assessments. The survey reveals an average growth expectation of 4.9% for 2023. The forecast from HSBC is one tick more optimistic, the British big bank confident that China will see a 5.0% increase in GDP this year. Their economists reckon that Beijing will adopt a raft of measures aimed at stimulating the economy. The leaders would try to keep inflation in check at the same time. “We believe that the effects of the major re-opening, supported by a recovery in the ailing real estate market, will narrow credit spreads and support the economy,” the HSBC economists state. They are accordingly expecting to see a return of inflows into the Chinese equity market. Indeed, HSBC is confident that the Shanghai stock exchange will post a double-digit percentage rise in 2023.
As so often, prices have already gone ahead of the change in mood, with stocks from the Far East having started a significant rebound back in autumn. The comeback is also evident on the Swissquote China’s Dragons Index. Currently containing 26 shares, the benchmark has appreciated by more than a third since the end of October. Thanks to the short rally, the Chinese market managed to escape the downward trend that began in summer 2021. The superpower’s return to normality, along with the political ambitions already outlined, suggests that prices are set to continue rising. Even so, the optimistic scenarios are not entirely free of risks. A sharper downturn in other economic regions, for instance, particularly the USA, could disrupt China’s comeback. On top of this come the high indebtedness of the People's Republic and the still rampant corona virus.
*consensus view; sources: Statista, Reuters; as at: January 2023. Past performance is not a reliable indicator of future performance.