China remains deeply attached to its traditions. It has adopted the western calendar for its civilian activities and for the publication of its statistics but it celebrates the New Year according to its ancestral practices, which are full of symbols. On January 21st, the country came into the Year of the rabbit. It is each time the opportunity for the families the urbanization, due to the strong growth during these last decades had separated, to meet. They had been impeached of it by the measures adopted during three years in order to fight against the pandemic. Their lifting allows to reviving the tradition, which is not going to be without consequences regarding sanitary situation as about economy.
The year 2022 has seen growth slowing and reaching 3%, which has generated critical comments, comparing this figure with these obtained during the past. But China today is not any more the same as in the past. It has enjoyed its “Glorious Thirties” which have allowed to hundred of millions Chinese citizens to getting out of the absolute poverty and it has captured the second place in the world economy thanks to the development of its industry and its exports and to the realization of modern infrastructures. China has become “the factory of the world” in less than a generation. But this model has reached its limits both because the increase of the life level has made de-localizations less attractive, the major companies looking for alternative solutions in other Asian countries and because the United States, and at a lesser extent European countries, have seen in these progresses a threat, amplified by the geopolitical tensions resulting from the invasion of Ukraine by Russia.
The 3% growth rate is among the lowest among these last forty years but it must be analyzed regarding the exceptional circumstances which have affected the world economy. Growth had been 2% in 2020, when the developed countries had known a deep recession. It had rebounded in 2021 to reach 8.4%. The Chinese economy has so grown during these three years with a yearly average rate of around 4% when the other countries have hardly recovered at the end of last year the level of production reached before the pandemic.
To the opposite of the past years, the evolution of the activity has been very different between sectors. Industrial production increased by 3.6%, pushed by minerals extraction (+7.3%) due to the transformation of the fossil fuels exchanges and by the high-technology sectors. Investment increased by 5% but this figure recovers also high disparities. In the industry and in the construction of infrastructures, it has progressed by 9% but in real estate, confronted with a heavy crisis, it declines by 10%. At last, the lockdown has weighted on household consumption which was still stagnating at the end of last year.
To the opposite, foreign trade surplus has reached a record with 878 billion dollars. The objective to rebalance growth to the profit of internal demand is far from being reached. Unemployment rate in urban areas, which is the only published statistic, remained stable at 5.5% but the country knows a demographic reversal. Natality, despite the abandon of the unique child policy and the incentive in favor of families offered in several regions, is falling and the mortality is increasing. For the first time in sixty years, the Chinese population has diminished. The fall is around 850 000 persons.
China hopes to regain a 5% growth in 2023, in conformity with the objectives of its Five-years plan but the IMF estimates that this figure is too high. Its forecast is 4.4%. The real estate crisis will have to be resolved. Trust regarding the High-tech companies will have to be restored. Their exceptional success and the high market valuations which have been reached had leaded the State to pass sanctions in the name of the necessary sharing of the wealth. At last, China is confronted with a new international environment, with a downturn of the globalization and with an increase of protectionism.
Liu He, the closest economic adviser to the Chinese president, has reaffirmed at the Davos Forum his country will to remain open and to look for win-win partnerships. Relationship between major Chinese companies and their foreign clients and suppliers will not be put into question. 80% of the Apple I-phones are made in China where Foxconn, the semi-conductors Taiwanese giant, has localized a large share of its production tool. It is the perturbations generated by the zero-Covid policy in its giant factory in Zhengzhou which have convinced the authorities it must be abandoned.
American threats on its exports will not incite China to isolate itself. The adhesion of Indonesia to the RCEP (Regional Cooperation Economic Partnership) which includes with China, the main ASEAN countries, Japan, South Korea, Australia and New Zeeland, which makes of it the largest free-trade zone in the planet, is testify of that. Even in the United States, the pressure is increasing from the major industrial groups to obtain a softening of the customs taxes decided by the Trump administration.
But Beijing will to guarantee its financial independence has not weakened and the strategy in favor of an internationalization of its currency which had been initiated ten years ago but which had been limited to the financial markets and to the Hong Kong place has been relaunched. The agreement concluded with the Gulf States regarding the fact that the oil and natural gas purchases could be paid with Yuan is a first strong signal of independence towards the dollar.
At last, the risks regarding Taiwan must not be overestimated. The economic links between the island and the Middle Empire are essential. Companies from both sides of the Detroit are taking profit of that and the new traveling freedom is going to make rebounding tourism activities. It is few likely that the Taipeh government initiates provocations which could put into question the current status. The next presidential elections will be in 2024.The return to power of the Kuomintang, which has had successful local elections through the gain of the capital city hall and which, as a paradox when we know the Chinese history, is in favor of an improvement of the relations with Beijing, could constitute a decisive point in favor of an appeasing.
The prospects of the Chinese economy during the year of the rabbit, are so less worrying that what we frequently hear. The rebalancing in favor of the internal consumption will take probably more time that what the Chines authorities had forecast. The reconfiguration of the oil and natural gas flows has allowed Beijing to being much less affected than Europe by the sanctions taken against Moscow. The reconstruction of the supply chains in order to make them shorter will weight on the foreign investments in China but that would be compensated by the development of the neighboring countries which will continue to be important commercial partners, notably thanks to the investments in transportation infrastructures realized under the New Silk Roads programs.
The worst is so not sure. China will remain one of the engines of the world growth in 2023. The euphory which results from the hundreds of millions of travels during the Lunar New Year holidays will not completely fall again and it is likely that the Chinese consumer, mainly in the large cities, will recover its past habits, and even will amplify them. The year of the rabbit could so bring to us good news, despite the harmful effects of the pandemic.