Wang Yiming: China’s Economy has Entered a Trend Recovery
By Xiong Li, Oct 7th, 2023; Economic Daily App,
During 167th session of the "Monthly Economic Talk" held by the China Center for International Economic Exchanges (CCIEE), Wang Yiming, Vice Chairman of CCIEE and Chairman of the Academic Committee at CCIEE, stated that China has the full capacity and conditions to address the difficulties and challenges it faces during the economic recovery process, and to steer the Chinese economy toward a high-quality development path. As long as we transform the process of economic recovery into a process of changing the development mode, optimizing economic structure, and shifting growth drivers, we can certainly promote the overall improvement of the Chinese economy and initiate a new growth cycle.Since this year, China's economy has shown an overall recovery and improvement. First-quarter data exceeded expectations, but there was some fluctuation in data from May to July. This has raised concerns about China's economic prospects, especially as it appears that some Western countries, particularly the United States, have started a new wave of pessimism about China's economy. "These views exaggerate the difficulties that China's economy is currently facing," said Wang Yiming.
In terms of economic growth, China's economic growth rate is gradually returning to its potential growth level. Wang Yiming believes that China's current economy is still in a phase of moderately high-speed growth, and a significant amount of academic research suggests that China's potential growth rate during the 14th Five-Year Plan period is around 5.5%. From 2020 to 2022, China's average annual economic growth rate was 4.5%, which was below the potential growth level. This was primarily due to the impact of the pandemic, which led to a decline in market demand and disruptions in the production and supply chain, hampering economic output. Since the beginning of this year, as the impact of the pandemic has gradually receded, demand has continued to recover, and supply constraints have been largely eliminated. As a result, economic growth is returning to the potential growth level. In the first half of this year, China's economy grew by 5.5% year-on-year, and given the marginal improvements in key indicators in August, it is expected that the economy can achieve slightly higher than 5% growth for the full year.
From the perspective of growth potential, China still has significant room for economic catch-up. China remains the world's largest developing country, and industrialization and urbanization are not yet complete. In 2022, China's per capita GDP was $12,700, which is only equivalent to 17% of that of the United States. China still has nearly 300 million agricultural migrant workers who have not fully urbanized. According to research by the Organization for Economic Co-operation and Development (OECD) team, if the process of urbanization for these migrant workers is accelerated, and if equal access to public services is promoted, their consumption levels could increase by 30%, unleashing tremendous consumption potential.
Looking at the population changes, China's population is transitioning from a quantity dividend to a quality dividend. In the foreseeable future, China's advantage of having a massive population will not change. If the fertility rate remains at around 1.3, China's total population is expected to remain around 1.4 billion people by 2035. At the same time, China's population is rapidly shifting from being quantity-oriented to quality-oriented. The number of people in China receiving higher education has reached 240 million, accounting for 17% of the total population. Although the growth rate and absolute number of the working-age population have declined, the improvement in the average level of education means that China's human capital will continue to increase over a certain period.
Considering the real estate market, Wang Yiming believes that although the real estate market is currently undergoing an adjustment period, and significant changes have occurred in the supply-demand situation, urbanization in China has not been completed. At the end of last year, China's urbanization rate for the registered population was 65.2%, but for the household registration population, it was only 47.7%, creating a gap of 17.5 percentage points. This portion of the population still has significant housing needs. Additionally, there is a substantial demand for improved housing among the existing urban population. Current real estate policies are being adjusted, and the potential for future real estate market development will be unleashed.
Regarding the trend in prices, Wang Yiming stated that the price decline observed this year is mainly temporary and distinct from deflation in the economic sense. China has not experienced sustained decreases in price levels, with the Consumer Price Index (CPI) rising 0.1% year-on-year in August, and the month-on-month increase expanding compared to the previous month. In the next phase, as temporary factors influencing price declines are eliminated and as residents' willingness to travel and consume during the Mid-Autumn Festival and National Day picks up,, alongside marginal improvements in real estate sales, the CPI is expected to gradually rise. It is anticipated that the full-year CPI increase will reach 0.5%. Over a longer timeframe, China's average year-on-year CPI increase over the past five years has been 2%, which is considered a relatively stable price level internationally. Especially in the context of widespread global inflation last year, China's CPI increased by only 2%, and the core CPI, which excludes food and energy prices, increased by 0.9%, maintaining a relatively low inflation level and leaving room for adjustments in macroeconomic policies.
Wang Yiming pointed out that when addressing external challenges, China possesses a robust domestic demand market. In recent years, China has accelerated the construction of a new development pattern that primarily relies on the domestic economy while promoting both domestic and international cycles. This harnesses the advantage of a super-sized market. Companies are actively adjusting and enhancing the resilience of industrial and supply chains through digital transformation. They are also strengthening the linkage between the domestic and international markets, which further bolsters their ability to cope with external uncertainties.
In terms of macroeconomic policies, China still has ample room for policy adjustments. Wang Yiming believes that China continues to implement an active fiscal policy and prudent monetary policy. This year, policy interest rates have been lowered twice, and deposit reserve ratios have been reduced, maintaining reasonable liquidity. There is also significant room for fiscal policy in the near future.
"Despite a more complex and challenging international environment, and new challenges facing domestic economic development, the overall situation of the Chinese economy remains positive," Wang Yiming stated. Currently, China is at a critical juncture of economic recovery and industrial upgrading. The challenges faced in economic operation are the result of the interaction between cyclical factors such as the lagging effects of the pandemic and structural issues related to economic transformation and upgrading.
Looking ahead to the future economic trend, Wang Yiming believes that key indicators improved marginally in August, and high-frequency data for September also indicate continued economic improvement. Especially as the policy measures introduced earlier take effect, it is expected that the economy will continue its recovery in the third quarter, with the possibility of an increase in economic growth in the fourth quarter. In summary, China's economy has entered a trend of recovery.