General

"At present, the downward pressure on the world economy has increased significantly." Lian Ping, Chairman of the Forum of Chief Economists of China, said recently at the 2023 Wealth Mid term Investment and Policy Conference of Bank of Ningbo that high inflation weakens consumption capacity and investment confidence. Import and export data show that since June 2022, retail sales growth in the euro area has been negative; Significant interest rate hikes have raised corporate financing costs, leading to a decrease in risk appetite among financial institutions; The crisis in the financial industry has led to cautious market expectations, shrinking consumption, and conservative investment. The global economic downturn is expected to strengthen. In March, the World Bank predicted that the average growth rate of the world economy from 2023 to 2030 would be 2.2%, the lowest level since 2000.

Lian Ping stated that the impact of international economic risks on China is more harmful than beneficial, and the worries outweigh the joys. Firstly, there is still high inflation and imported inflationary pressure overseas. In May, the core CPI of the United States and the eurozone was at a high level of 5.3%, and the spillover of risks from Europe and America may lead to fluctuations in commodity prices, putting pressure on domestic prices and driving up investment and production costs. Secondly, the high interest rates in Europe and America have brought fluctuations to the financial markets and the RMB exchange rate. Thirdly, overseas financial risks bring conservative expectations to the domestic financial market. Fourthly, the wealth effect weakens and consumer demand shrinks. Fifth, credit expansion is hindered, inhibiting investment growth. The tightening of the deposit side in the European and American banking industry will suppress the expansion of the loan side, leading to a significant contraction in outward investment. Sixth, the international situation forces China to accelerate industrial transformation. The adjustment of the global industrial chain supply chain has brought huge challenges to China, such as localization leading to industrial backflow. However, at the same time, it has also forced China to accelerate the implementation of innovation driven strategies, break through the "low-end lock" in the industrial chain value chain of developed countries, and continuously expand international cooperation through diversification.

According to import and export data, with more than half of the itinerary in 2023, can the current Chinese economy recover as scheduled in such an international situation? Lian Ping stated that although the relevant indicators in May were not as expected, such as the continued weakening of private investment and the widening decline in real estate investment, the overall economy of China is still on the path of recovery. Looking ahead to the second quarter, economic growth will continue to accelerate year-on-year, but the month on month growth rate will slow down. It is expected that GDP growth in the second quarter will exceed 6%, and it is highly likely to achieve the expected target of economic growth of around 5% for the whole year.

According to Zhu Haibin, Chief Economist of JPMorgan Chase China, after experiencing the strongest recovery momentum after the epidemic in February and March, the Chinese economy will enter a relatively neutral or weak post epidemic recovery. In the second quarter, the month on month growth rate of the economy will drop to 3.5%, and it is expected that the annual growth rate of the Chinese economy will be about 5.9%.

According to import and export data, in terms of investment, fixed assets increased by 4% in May, with infrastructure investment and manufacturing investment increasing by 7.5% and 6% respectively, with growth of 4.9% and 5.1% in the same month. Lian Ping said that in the second half of the year, fixed assets investment will maintain a steady and rapid growth and continue to play a role in stabilizing growth. Driven by abundant funds and projects, infrastructure investment continuously forms physical workload, and project construction maintains normal progress, providing strong support for stable growth of infrastructure investment. The gradual improvement of private enterprises' operating conditions, the increase of financial support and the gradual decline of the high Base effect will continue to promote the steady and rapid growth of manufacturing investment, which will still be higher than the pre epidemic level.

According to import and export data, from a consumption perspective, Zhu Haibin stated that the current domestic consumption recovery is showing a "K-shaped" differentiation trend. The "K-shaped" recovery means differentiation in repair between different industries, as well as differentiation in the impact of the epidemic on different income groups. The sales of gold and silver jewelry and luxury goods related to the high-income class performed very well in the first few months, while the performance of products related to ordinary consumption by the general public was relatively flat in the first four months. Therefore, this year's consumption is more of a normalization process, and the possibility of retaliatory rebound is relatively low. This is also because China's policies focus on the production and investment sides, and the direct consumption policy for residents is still limited overall

Lian Ping stated that although domestic demand remained weak in May, the combination of the "May Day holiday" and a low base still drove rapid consumption growth. Looking ahead to the second quarter, the contribution of consumption to GDP will be higher than in the first quarter. As the economy stabilizes and improves, the job market and income gradually improve, holiday consumption scenarios increase, service consumption continues to recover, catering consumption accelerates, real estate and car sales further improve, driving overall consumer demand to be effectively released, and continuing to become the first driving force for economic growth.

According to import and export data, from the perspective of exports, Lian Ping stated that China's export growth rate may be low before high this year. One reason is that due to the weakening of overseas demand in 2023, high inflation still squeezes demand, putting overall pressure on China's exports. However, the global monetary tightening policy has been tightened before and then eased, and external demand may rebound in the mid to late stages. Second, because of the Base effect, China's exports last year were high before and low after. Thirdly, there is still important support for China's exports. ASEAN continues to support China's exports under the RCEP framework; With the promotion of trade diversification, China's exports to Africa and regions along the the Belt and Road are expected to speed up; The entire domestic industrial chain system highlights the advantage of export supply; Various policies and measures to stabilize foreign trade and growth create a favorable environment for the development of foreign trade. (Translated from: China Trade News)