Recent data released by the National Bureau of Statistics (NBS) shows that China’s GDP grew 5.5% year-on-year in the first half of 2023. Economists said this half-year report indicates that China’s macro economy is continuing to recover steadily, with the threefold pressures of demand contraction, supply shock, and weakening expectations easing to a certain extent.

Recovery foundation consolidated

According to the NBS, the overall growth rate of the first half of 2023 was 1 percentage point quicker than that of the first quarter, further implying evident recovery in China’s economy. Fan Zhiyong, a professor of economics from Renmin University of China, said that the 1-percentage-point quicker rate is a result of adjustments to epidemic prevention and control measures, which brought China’s economic and social life back to normal.

Compared to the past, the current recovery of the Chinese economy is unique in that it is not solely reliant on policy relaxation, but also on the lifting of COVID-19 restrictions. Scholars have noted that this atypical recovery has the potential to instil confidence into consumers, producers, and investors in a relatively short span of time. However, it is important to acknowledge that disruptive factors were unavoidable during this exceptional period. In the second quarter, therefore, reality was somewhat divorced from expectations.

Mao Zhenhua, co-founder of China Macroeconomy Forum, said that disruptions to the economy due to this atypical rebound are justifiable, but China’s long-term economic prospects remain bright, and it is still in the process of recovery.

The International Monetary Fund recently projected that world economic growth will slow from 3.5% in 2022 to 3.0% this year. This indicates that the global economy is facing challenges and risks that are contributing to its sluggish growth. On the other hand, the Chinese economy has demonstrated its ability to handle difficulties and challenges, showcasing remarkable resilience. The international community has widely recognized China as an important engine of global growth.

Great promise despite challenges

At a meeting held on July 24 to analyze the current economic situation, the Politburo of the CPC Central Committee pointed out that China’s economy is currently facing new difficulties and challenges. These challenges primarily include inadequate domestic demand, substantial operational difficulties facing certain enterprises, myriad risks in key fields, and a complicated and grim external environment.

In the short term, problems are concentrated in consumption and investment. In particular, expectations for residents’ income growth have declined, leading to decreasing per-capita consumption, and further highlighting the importance of related policies’ ongoing effect on consumption.

Regarding fiscal policy, Fan advised that distribution of household allowance should be prioritized, supplemented by subsidies for enterprises. The optimization of household consumption decision-making will contribute to reasonable allocation of social resources, thus advancing better and higher-quality development of the Chinese economy.

In terms of monetary policy, Fan suggested continuing to inject currency into the real economy to vigorously stimulate its demand and create a favorable, low-interest-rate environment for enterprises and technological innovation through price-based monetary policies.

As the economy and society return to normal, domestic demand is steadily recovering, providing a strong foundation for the Chinese economy to weather challenges and pursue high-quality development. This situation also demonstrates China’s capabilities of withstanding various complex fluctuations amid high-quality economic development, Mao predicted.