Economic Outline

Economic Indicators

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

China is the second largest global economy, the largest exporter and has the largest exchange reserves in the world. However, even though China has one of the fastest growing GDPs in the world, its economic growth was abruptly slowed to 2.3% in 2020, against 6% in 2019, due to the impact of the COVID-19 pandemic. The 2019 context was already the result of a structural slowdown, as the economy moves away from an investment-led growth model and the government implements policies to reduce financial vulnerabilities. At the time, resilient external demand and robust domestic household consumption bolstered this growth, despite rising concerns about financial risks amid an economic restructuring led by the government. In 2021, growth came back strongly at 8.1%. New sectors like e-commerce and online financial services are gaining momentum in an economy dominated by export-oriented sectors. Nevertheless, growth came back to only 3.2% in 2022. (IMF Economic and Political Outlook, October 2022). The GDP trend is expected to recover at 4.4% in 2023 amid a reopening of the economy, according to Navigating Uncertainty, the latest China Economic Update released today by the World Bank (2023).

China’s economy has strongly rebounded from the deep dive following the COVID-19 outbreak and has returned to its gradually slowing path. The rebalancing from investment to consumption, from manufacturing to services, and from rural to urban migration have all been set back by the pandemic, but need to restart to make growth sustainable and inclusive (OECD, 2023).

By the end of 2022, inflation reached 2.2% and it should stabilise at 2.2% and 1.9% in 2023 and 2024 (IMF, 2023). Public debt is a reason for concern in China. Although the official figure for 2022 was 76.9%, the real number is thought to be much higher and is expected to rise in coming years. According to a report published by the Institute of International Finance, the total stock of corporate, household and government debt in the nation now exceeds 303% of gross domestic product and accounts for about 15% of all global debt. Lately, the government has been targeting spending cuts in its budget and President Xi Jinping has said that curbing loans to bloated state-owned enterprises is “the priority of priorities". Nonetheless, the IMF anticipates an increase in the government debt in the future, reaching 84.1% in 2023 and 89.8% in 2024. Due to the COVID-19 pandemic, government budget balance reached a record low of -8.1% of GDP in 2020 compared to -5.9% the previous year, but then came back to 5.5% in 2021 before reaching in -8% in 2022, a trend that is expected to slow in 2023 and 2024, when it is estimated to remain at -6.5% and -6.9%, respectively. On the other hand, China still has large reserves of foreign currencies, estimated by the Chinese Official reserve assets at USD 3.128 trillion in January 2023, which could serve as a buffer to external sovereign volatility, together with a current account surplus of an estimated USD 275.7 billion in 2022 (IMF, 2022). Consumption is still to recover from the hit caused by the COVID-19 outbreak. Even though sales of luxury goods are booming and box office revenues have reached new highs, the lack of a recovery in employment and falling household incomes mean that prospects for a full consumption recovery are not bright (OECD, 2022).

According to the Minister of Human Resources and Social Security Yin Weimin, the low unemployment rate of these past years is largely due to the new digital economy and entrepreneurship. Many analysts say, however, that the government figure is an unreliable indicator of national employment levels, as it takes into account only employment in urban areas and does not measure the millions of migrant workers that arrive in the country every year. Despite the global context, the unemployment rate slightly decreased from 4.2% in 2020 to 4% in 2021. The IMF expects the rate to return to pre-pandemic levels of 4.1% in 2023 and 3.9% in 2023.

In 2023, the country’s most immediate challenge remains related to the economic, social and public health impacts of the COVID-19 pandemic. Furthermore, China has to face many challenges: an ageing population and shrinking workforce, the lack of openness of its political system and issues of competitiveness in an economy dependent on high capital spending and the expansion of credit. A large gap remains between the living standard of the cities and the countryside, between urban zones on the Chinese coast and the interior and western parts of the country, as well as between the urban middle classes and those who have not been able to profit from the growth of recent decades. These inequalities are becoming increasingly worrisome for both Chinese authorities and investors, hence Xi Jinping's vow to complete the eradication of rural poverty by 2020 followed by his speech the following year, stating that the "arduous task of eradicating extreme poverty has been fulfilled" (BBC News, February 2021), even though the national benchmark used by the Chinese government is slightly higher than the USD 1.90 a day poverty line used by the World Bank to look at poverty globally. The COVID-19 pandemic also highlighted weaknesses in the health and social security systems and pushed many households and firms to the brink of bankruptcy. It further widened inequalities between central provinces that have been hardest hit and the coast; between poorer households that had already been indebted and wealthier households and between the private sector, which has limited access to infrastructure contracts and is hard hit by slackened demand and the state-owned sector. Such divides will need to be addressed by the central government to make growth inclusive and sustainable (OECD, 2023).

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