Sinology: China Numbers that Count

Sinology: China Numbers that Count

Andy Rothman reviews data points that offer insights into the coming quarters.

Andy Rothman, Investment Strategist

Key Takeaways

  • China’s economy is weak, but not in crisis.
  • Confidence among entrepreneurs and households has been shaken by poorly explained and poorly implemented economic and regulatory policies.
  • I believe confidence can be restored if Beijing takes steps that demonstrate it is creating a clear and stable policy environment which supports the private sector.
  • Pragmatic policy changes are likely after first quarter GDP growth will be too slow to support Xi Jinping’s expected full-year target of around 5%.

The Chinese government recently announced a GDP growth rate of 5.2% year-over-year for 2023. That was fast, but that isn’t one of the more important data points for investors trying to understand China’s prospects for 2024.

In this issue of Sinology, I will review 15 other numbers that offer better insight into the coming quarters, and which illustrate my four key themes for the year.

The first theme is that although the Chinese economy is weak, it is not in crisis.

Second, my travels in China last year made clear that confidence among entrepreneurs and households has been shaken by poorly explained and poorly implemented economic and regulatory policy changes by their government.Rather than hoping for stimulus or subsidies, entrepreneurs are looking for a clear and stable policy environment.

Third, I believe confidence can be restored if Beijing takes steps that convince entrepreneurs and households that the government is getting out of the way of business, is fully supporting the private sector and markets, and is creating a more transparent regulatory environment. Basically, Beijing needs to return to the pragmatic economic policies that led to the expansion of the private sector—which now employs about 90% of the urban workforce—and which made China rich.

Fourth, I’m optimistic that more pragmatic policy changes are likely later in 2024.Xi Jinping will probably set a GDP growth target of around 5% for this year, which will be very difficult to reach without significant policy changes in the first half. Disappointing first quarter growth should be a catalyst for those policy course corrections.

Following are 15 stats that support these themes:


In 2023, retail sales were up 15.6% compared to 2019. Consumer spending has been relatively strong recently, compared to pre-pandemic times. (Because China’s 2022 economy was weak under zero-COVID policies, presenting a soft base for year-on-year comparisons, in this Sinology we will generally assess 2023 data against that from 2019.)


Last year, real (inflation-adjusted) per capita household income was 20.7% higher than in 2019.


In 2023, real per capita household consumption expenditure was 17.6% higher than in 2019.

In each quarter of last year, household consumption growth on a YoY basis was faster than income growth, which signals an improvement in consumer confidence.

Per capita spending on services, which account for 45.2% of total household consumption, rose 13.3% YoY in real terms in 2023, and 18.6% higher than in 2019.


The core consumer price index (CPI), which excludes food and energy prices, increased at an average pace of 0.7% YoY last year, compared to a 0.9% increase in 2022, 0.8% in 2021, and an increase of 1.6% in pre-pandemic 2019.

While headline CPI declined 0.3% YoY in December, that largely reflected a 26% YoY fall in the price of pork, the main protein source in China. Pork prices are always very volatile, and were up 22% YoY a year earlier. For the full year, headline CPI rose 0.2% YoY. CPI-services increased 1% YoY in 2023. Chinese consumers are facing very little inflation, but not deflation, which economists define as a sustained fall in overall price levels.


China’s producer price index (PPI) declined 3% YoY, following increases of 4.1% YoY in 2022 and 8.1% YoY in 2021. While much of last year’s decline reflected lower global energy and commodity prices, weak PPI generally results in weaker industrial profit growth in China.


Since the beginning of 2020, family bank balances have risen 68%, a net increase equal to US$ 7.9 trillion, which is much larger than the GDP of Japan in 2022, and equal to 83% of the China’s tradable A-share market capitalization at the end of last year.

Total household bank deposits hit a new record last year, equal to US$19.5 trillion, which is equal to 76% of the U.S.’ 2022 GDP.

Once confidence returns, this savings could be significant fuel for a continuing consumer spending rebound, as well as a recovery in mainland equities, where domestic investors hold about 95% of the market.


The problem of weak household and entrepreneur confidence is reflected in the residential property market, where homebuyers are shunning new construction because of worries that developers won’t deliver.

Most new homes in China are sold on a pre-sale basis, which means buyers put down 30% cash and immediately begin servicing their mortgage, while builders pledge to use those funds to complete construction, usually within 18 to 24 months. Recently, however, many developers have failed to meet that contractual obligation, leaving buyers with little recourse.

Fear of non-delivery is a key reason why, in the 25 largest cities, new home sales, on a square meter basis, declined 32% last year, compared to the same period in 2019.


But, in those 25 cities, sales of existing homes last year, on a square meter basis, were 13% higher than in 2019.

This demonstrates that there is decent demand for property, but buyers now prefer existing homes because they lack confidence in developers, many of whom are in financial distress. (Another factor is that buyers can often negotiate a better discount with individual sellers of existing homes.)

To restore confidence, I’d like to see the central government create an insurance program for pre-sale down payments, similar to the U.S. Federal Deposit Insurance Corporation (FDIC), which was established in 1933 to restore household trust in American banks. Developers and mortgage lenders could contribute to this Chinese fund as U.S. banks support the FDIC.


Industrial value-added in 2023 was 22.1% higher than in pre-pandemic 2019.


Electricity consumption in 2023 was 25.9% higher than in 2019.


Investment by private firms declined 0.4% YoY in 2023, largely due to the struggling property sector. Private investment excluding real estate increased by 9.2% YoY, and compared to 2019, overall private investment was up 8.6%, but it is clear that entrepreneurs are increasingly reluctant to invest in their own businesses at this time.


China’s exports have help up reasonably well. In the first three quarters of 2023, China accounted for 14.2% of global exports by value, up from a 12.8% share in 2017, before President Trump launched his trade war.


Rebalancing of the Chinese economy continued last year, with final consumption accounting for 82.5% of GDP growth, up from a 58.6% share in 2019. Gross capital formation (investment and changes in inventory) contributed 28.9% of GDP growth last year, the same share as in 2019. Net exports (the difference between a country’s exports and imports of goods and services) were a -11.4% drag on GDP growth last year, compared to a 12.6% contribution to growth in 2019.

176.6 million

The number of migrant workers—rural people who seek employment in urban areas—rose to 176.6 million at the end of 2023. This was an increase of 2.7% YoY and was 1.3% higher than at the end of 2019, indicating that rural workers believe that urban opportunities have returned to pre-pandemic levels.


Real GDP growth of 5.2% YoY last year satisfied the government’s target of “around 5%.” But that was easy (the base was only 3% in 2022), compared to the challenge of maintaining that pace this year (off a base of 5.2%).

The 2022 base was, for China, modest, because of the impact of COVID. GDP growth in 1Q23, however, was relatively strong at 4.6% YoY, creating a difficult base for first quarter of 2024, especially given that I anticipate Xi will again set a target of around 5% for the year. The challenge of hitting that target absent significant policy changes should become increasingly clear in the coming months.

The prospect of missing that ambitious target, added to recommendations by many Chinese economists to do more, is likely to lead Xi to course correct and return to the kind of pragmatic economic policies that delivered an average annual real GDP growth rate of 6.2% during his first 10 years as Party chief. (Of course, China won’t return to that pace, but the base effect means that 5.2% growth in 2023 generated as much incremental economic expansion as 7.8% growth 10 years ago.)

Xi is likely to recognize that if he does not do a lot more to correct past policy mistakes, confidence among households and entrepreneurs will deteriorate further, leading to a sharper growth slowdown. The longer that persists, the harder it will be to generate a turnaround. Recognition of this risk should, I believe, lead to the pragmatic course correction that entrepreneurs and investors have been impatiently waiting for.

Andy Rothman
Investment Strategist
Matthews Asia

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