China’s Q2 GDP Grows 6.3% Despite Challenges; Growth Rate Hard-won Despite Falling Short of Some Projections

By Wang Cong and Ma Jingjing

Jul 17, 2023 10:47 PM

China's GDP in first half of 2023 reaches 59 trillion yuan, up 5.5 percent year on year. Photo: VCG 

Chinese officials said on Monday China's economy expanded by 6.3 percent year-on-year in the second quarter of 2023, as they sought to project confidence in the overall positive recovery trend, while also acknowledging challenges from a complex global political and economic situation and an "unsolid" foundation for continued recovery and development.

The second quarter growth rate fell short of relatively high forecasts from some overseas and domestic institutes, prompting questions about the recovery momentum of the world's second-largest economy and even grim predictions for future growth.

However, Chinese officials and analysts maintained that the growth rate is hard-won given downward pressure globally and domestically and the absence of broad-based stimulus, and that while challenges remain, China has plenty of policy tools at its disposal to ensure the recovery continues to pick up pace and the full-year target is met. 

Different views on rate

The National Bureau of Statistics (NBS) said on Monday that China's second quarter GDP grew by 6.3 percent from a year earlier, which lifted the growth rate in the first half of the year by 1 percentage point to 5.5 percent. China's GDP expanded by 4.5 percent in the first quarter, after the country declared a decisive victory against COVID-19 and embarked on a recovery pace. 

"In general, in the first half of the year, as the economy and society fully resumed normal operation and macro policies took effect, the national economy rebounded and headed toward a positive direction," Fu Linghui, a spokesperson for the NBS, said at a press conference in Beijing. "However, we must also realize that the global political and economic situation is complicated, and the foundation for the sustained recovery and development of the domestic economy is still not solid."

The 6.3-percent growth in the second quarter of 2023 comes on top a low base in the second quarter of 2022, when GDP growth stood at 0.4 percent growth due to the epidemic. The growth rate in the second quarter also fell short of some projections. For example, the Institute of Finance and Banking at the Chinese Academy of Social Sciences, an official think-tank, had predicted a 7-percent growth, and a Reuters poll forecast a 7.3-percent growth. That prompted some foreign media outlets to declare that China's economy "has lost momentum" and its recovery is "fragile." 

However, Chinese officials pushed back against such claims. Asked whether the growth rate in the second quarter was slower or faster than expected at the press conference, Fu said China's economy remains on a positive stable trend, noting a 5.5-percent growth in the first half is faster than the 3-percent growth in 2022 and the average annual growth rate of 4.5 percent over the three years under COVID-19. "The recovery trend of economic growth is relatively significant," he said, noting China's growth rate in the first half is still the fastest among all major economies. 

Chinese analysts, pointing to global downward pressure and sluggish domestic demand in some areas, also maintained that the growth rate fell largely within expectation.

"The 5.5-percent growth rate in the first half is the same as our previous forecast. The 6.3-percent growth rate in the second quarter is indeed a bit low, but it is not too low and is basically in line with expectations," Tian Yun, a Beijing-based economist, told the Global Times on Monday. "China's economic growth - both in terms of its accelerating recovery and contribution to global growth - is obvious for all to see." 

Notably, on a quarter-on-quarter basis, China's GDP grew 0.8 percent in the second quarter of 2023, beating a 0.5-percent quarter-on-quarter growth rate projected by Reuters. The year-on-year growth rate of 6.3 percent also means the fastest pace since the second quarter of 2021, when growth hit 8.3 percent.

Economists also pointed out that the 6.3-percent growth rate in the second quarter is hard-won and actually showed the resilience of the Chinese economy, as the growth was achievement without broad-based economic stimulus and as traditional growth boosters such as exports and real estate faced slowing pressures. 

"The achievement is hard-won amid multiple domestic and external challenges. It reflects that Chinese consumers' confidence wasn't seriously damaged and that the country's dual circulation development paradigm driven by high-tech sector offsets slowdown in external demand," Cao Heping, an economist at Peking University, told the Global Times on Monday. 

Calls for policy support

Still, going forward, major challenges are likely to remain and more policy support is needed to boost expectation and stabilize growth, officials and economists said.

"To shift from restorative growth to sustained growth, we need to strengthen endogenous force, address the problem of income growth and carry out fundamental reform measures to restore confidence," Zhang Yansheng, chief researcher of the China Center for International Economic Exchanges, told the Global Times on Monday, pointing to weak private investment, which, he said, reflects lack of confidence and negative sentiment.

Chinese officials have said that China's economy remains in a critical period of recovery, which often comes with challenges. At a press conference on Friday, Liu Guoqiang, deputy governor of the People's Bank of China (PBC), the central bank, said challenges are normal during the recovery process, which is internationally believed will take about one year and it's only been half a year for China's recovery.

On Monday, Fu also noted that in the next stage, the external environment will likely become more complex and severe and domestic economic development will also face pressure. Still, pointing to improving employment, growing income, strengthening internal demand, among others, Fu said, "we have the confidence, the condition and the capability for accomplishing the expected goals and tasks of economic and social development for the whole year."

China has set a GDP growth target of around 5 percent for 2023. Economists are also confident the growth target will be met and could even be exceeded. 

"It is highly likely that the full-year GDP growth rate will reach above 5 percent, and with strong policy stimulus, could reach as high as 5.5 percent," Lian Ping, chief economist and head of the Zhixin Investment Research Institute, told the Global Times on Monday.

Lian noted the intensity of macro policy adjustment needs to be further strengthened to support private firms, restore the property market, increase youth employment, expand consumption and prevent risks. Specifically, Lian called for further fee and tax reduction and increased financing for major areas such as real estate, manufacturing and small businesses. 

Chinese officials have also vowed increased support for small businesses, the private sector, the real estate market as well as the real economy in recent meetings and policy documents. For example, Chinese Premier Li Qiang on Wednesday held a meeting with representatives from private e-commerce giants including Alibaba, Douyin, Xiaohongshu and Meituan, sending a strong signal of support. A meeting of the central commission for deepening overall reform last week stressed efforts to put in place new systems for a higher-standard open economy.

On Friday, PBC officials also said that the central bank will use policy tools such as the reserve requirement ratio and medium-term lending facility when necessary to address challenges and ensure stable growth in the second half of the year. 

More policy support for various sectors, including foreign trade and domestic consumption, is expected, as officials are scheduled to hold more press conference on different aspects of the economy this week. 

Tian said relatively urgent measures like the removal of administrative restrictions on consumption, including certain restrictions on car purchases in some cities, need to be instituted. He also said foreign trade could see some improvements, if increasing talks between Chinese and US officials result in eased trade tension. 

In the latest sign of growing interactions, China's Ministry of Commerce (MOFCOM) said on Thursday that it holds an open and welcoming attitude toward a potential visit by US Secretary of Commerce Gina Raimondo, while calling on the US to remove additional tariffs on Chinese goods.