As the last month of the year winds down, wide-spread discussion is on in various fields over major issues that China's economy might face next year. Though opinions vary, there are some major concerns market watchers and economists have in common.
First, the slower-than-expected growth due to sluggish demand has become a major issue for the nation's economy. A situation where the economy cannot secure a certain growth rate is likely to damage the functioning of the basic economic cycle and overall production capacity, which ultimately will lead to a decline in growth momentum — further weighing on the economy. At present, insufficient development instead of unbalanced development, as well as cyclical issues instead of structural ones with accelerated contraction of domestic demand, have become major and urgent issues awaiting solutions.
Second, the nation's economy is challenged by many noneconomic and external factors. Though facing various structural problems and downward pressure in some sectors before the COVID-19 outbreak, China's economy was still on a healthy track if seen from the overall short-term macroeconomic cycle. The sharp decline in the growth rate in recent years was mainly due to unexpected shocks — the COVID-19 pandemic, drastic global changes such as the Russia-Ukraine conflict triggering transfers of various geopolitical risks to the economic field and government policies worldwide that often exacerbate existing systemic problems.
Third is the current insufficient effective demand. Apart from the fact that external demand will continue to slow under the impact of global stagflation next year, more importantly, downward pressure is still there weighing on the economy, resulting in shocks to the market and expectations. As a result, we have seen sustained acceleration in consumer investment decline in the third and fourth quarters, with investment growth falling from 12.2 percent in the first quarter to 5.8 percent in October. Consumption growth slowed from a 5.4 percent growth in August to-0.5 percent in October. The consumer price index dropped from 2.5 percent in August to 2.1 percent in October. The producer price index fell from a first-quarter high of 6.1 percent to — 0.3 percent. Such parameters are the most real health indicators of various sectors, and their continuous and rapid declines fully reflect the accelerated decline in effective demand, especially the accelerated decline of domestic demand, to which should be paid great attention.
Fourth, consumption is contracting faster than investment. Since the third quarter, fixed asset investment has stabilized between 5.8 percent and 6 percent, thanks to the support from infrastructure and manufacturing investment, which basically protected against the decline in real estate investment and private investment. However, consumption did not recover much, and the policy package to stabilize growth had a limited effect on consumption, which was reflected by the growth rate of total retail sales of consumer goods falling from a growth of 5.4 percent in August to-0.5 percent in October, revealing an accelerated contraction.
Above article is from China Daily
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