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."
