• In Chinese culture, the Rabbit is a symbol of longevity, peace, and prosperity. 2023 was far from this, one word can be used to describe 2023 for the world’s second-largest economy, China’s economic prospects started 2023 very much on the front foot as the country emerged from some of the harshest global COVID-19 restrictions. The year was barely out of the starting blocks before a crisis of confidence hit the property sector.
  • Evergrande reported difficulty in meeting debt obligations after initially defaulting in 2021 at the height of the COVID-19 crisis. Creditors lined up, while retail property purchasers faced the prospect of unfinished properties and heightened financial liabilities. Since then, several property companies have faced challenges, with the latest being Country Garden, which received a reprieve early in December from investors on its yuan-denominated debt after defaulting on its dollar bond in November.
  • All of this has naturally filtered through to the broader economy, raw material demand has cratered, and investor confidence has taken a severe knock. Chinese consumers have reined in spending as the negative wealth effect of falling property prices hit confidence. Chinese are known to have a significant portion of their wealth tied to property, so the behaviour is clearly correlated.

 

Bottom line: Economic conditions in China have been challenging in 2023. First quarter GDP fell to 4.5% y/y before recovering to 6.3% y/y in the second quarter and falling again in the third to 4.9% y/y. Beijing revised its forecasts for 2023 growth, while the IMF sees growth hitting 5.4% in 2023, which aligns with current official Chinese forecasts.

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