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00:08 China's economic activity bounced back in the 1st
00:10 quarter of this year will still be open.
00:13 The strong performance was spurred by the release of pent up consumer demand,
00:17 especially for services,
00:19 some improvement in the housing sector,
00:21 and policy support.
00:24 However,
00:24 gross momentum has slowed since April.
00:27 Indicating that the recovery remains fragile,
00:31 the drivers that could sustain the growth momentum,
00:34 improvements in the labor market.
00:37 And household incomes,
00:39 recovery in business confidence and private investment,
00:43 and a turnaround in the housing market
00:46 are yet to gain traction.
00:48 China's GDP growth is projected at 5.6% this year.
00:53 Led by a rebound in consumer spending and a pickup in investment.
00:58 Softer external demand will weigh on exports.
01:01 Downside risks to the outlook
01:04 include
01:04 sluggish household income growth and lingering
01:07 uncertainty about the labor market recovery
01:10 that could hold back consumer spending,
01:12 a prolonged weakness
01:14 in the property sector.
01:16 And tighter global financial conditions and heightened
01:19 geopolitical tensions.
01:21 Economic recovery
01:22 offers an opportunity for policymakers
01:25 to refocus on China's
01:27 longer term
01:28 development
01:29 objectives.
01:31 Including
01:33 to become a high income country by 2035.
01:36 The carbon emissions before 2030
01:39 and become carbon neutral by 2060.
01:42 And share the gains from economic growth
01:45 more equally among the population.
01:48 To revive productivity growth,
01:51 China needs innovation,
01:53 technology adoption,
01:55 and a more efficient allocation of resources.
01:58 To achieve this,
02:00 deeper reforms to increase the role of markets,
02:03 the private sector,
02:04 and competition are instrumental.
02:08 Addressing the high level of indebtedness
02:11 will require stronger institutions to manage insolvency,
02:15 firm restructuring,
02:16 and bankruptcy.
02:19 Economy-wide use of carbon pricing could help achieve
02:22 a more efficient decarbonisation path.
02:26 Finally,
02:27 robust economic growth that creates jobs remains an important mechanism
02:32 for reducing inequality.
02:35 In addition,
02:36 policymakers have stressed the role of fiscal policy.
02:40 Empirical evidence suggests
02:42 that China's fiscal system
02:44 is progressive.
02:46 It delivers greater value to households with lower incomes.
02:50 However,
02:51 the overall impact of fiscal policy on inequality
02:55 is partly reduced by regressive indirect taxes
02:58 such as the VAT,
02:59 which fall disproportionately on poorer households.
03:03 Hence there is scope for fiscal policy to make a greater dent on inequality.
03:09 A higher share of fiscal revenues could be collected through progressive taxes
03:13 such as the personal income tax
03:15 and property taxes.
03:17 On the expenditure side,
03:19 public education and health are already contributing significantly
03:24 to reducing inequality.
03:27 Further improvements could
03:28 focus on closing the remaining gaps in access to high quality public services
03:33 and higher social security benefits.
BEIJING, June 14, 2023 — China’s economic activity bounced back in the first quarter of 2023 with the removal of mobility restrictions and a surge in spending on services. However, growth momentum has slowed since April, indicating that China’s recovery remains fragile and dependent on policy support, according to Sustaining Growth through the Recovery and Beyond, the latest China Economic Update released today by the World Bank.
China’s GDP growth is projected to rise to 5.6 percent in 2023, led by a rebound in consumer demand. Capital spending in infrastructure and manufacturing is expected to remain resilient. Meanwhile, external demand is expected to remain soft with weak global growth impacting exports.
“Implementation of key structural reforms remains crucial to solidify the recovery and achieve China’s longer-term goals of environmentally sustainable, resilient, and inclusive growth,” said Mara Warwick, World Bank Country Director for China, Mongolia, and Korea. “The economic recovery provides opportunities for further reducing financial risks, strengthening the social safety net, and implementing market reforms to encourage private investment while putting the economy on a more efficient decarbonization path.”
Risks to China’s growth outlook are tilted to the downside. Sluggish income growth, lingering uncertainty about the recovery in the labor market, and high household precautionary saving could hold back consumer spending. Although the property sector is showing signs of stabilization, excessive leverage among developers remains largely unaddressed, and persistent weakness in the sector could weigh on the economic recovery. Externally, risks emanate from weak global growth prospects, sharper-than-expected tightening in financial conditions, and heightened geopolitical tensions. On the upside, a faster jobs recovery could boost sentiment and contribute to higher consumption growth.
The report also examines opportunities to deploy fiscal policies to reduce inequality, a key development policy objective. “As in the past, robust economic growth that creates jobs and boosts household incomes will remain important for shared prosperity,” said Elitza Mileva, World Bank Lead Economist for China. “In addition,fiscal policy—both revenue and spending measures—can be effective in promoting more equitable income distribution among China's population.”
For more information, please visit: www.worldbank.org/projects
For more about the World Bank program in China, please visit: www.worldbank.org/china
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