China H1 2023 Economic Roundup: GDP Grows 5.5% on Steady Path to Recovery

The National Bureau of Statistics has released the H1 2023 China economic data, showing robust recovery in the six months since the lifting of most COVID-19 restrictions. However, monthly data shows that growth slowed in May and June, signaling possible hurdles ahead and raising discussion of a possible stimulus package. 

China’s economic indicators for the first half of 2023 indicate a steady post-COVID recovery, as the half-year GDP growth rate exceeds the annual target. The second quarter saw a significant recovery in areas, such as services and consumption, while the growth of industrial and manufacturing output accelerated in June from the previous month.

However, on a monthly basis, growth rates have tapered off over the course of the last two months, once again raising the need for stimulus for the economy to maintain momentum going into the latter half of the year.

China GDP growth accelerates in the second quarter of 2023 

China’s GDP experienced a healthy growth rate of 5.5 percent year-on-year in the first half of 2023, one percentage point faster than the first quarter. Total GDP reached RMB 59.3 trillion (approx. US$8.3 trillion). In the second quarter, GDP grew by 6.3 percent year-on-year, up from 4.5 percent year-on-year growth in the first quarter.

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Broken down by industry segments, we can see that services have experienced the fastest recovery compared to 2022:

• Primary industries grew by 3.7 percent year-on-year, reaching RMB 3.04 trillion (approx. US$424.1 billion); 
• Secondary industries grew by 4.3 percent year-on-year, reaching RMB 23.07 trillion (approx. US$3.2 trillion); and 
• Tertiary industries grew by 6.4 percent year-on-year, reaching RMB 33.19 trillion (approx. US$4.6 trillion). 

The per capita disposable income in the first half of 2023 stood at RMB 19,672 (approx. US$2,739.79), a nominal increase of 6.5 percent from the same period in 2022. Adjusted for price factors, this was an increase of 5.8 percent year-on-year. 

Meanwhile, the per capita wage income in the first half of the year was RMB 11,300 (approx. US$1,573.79), an increase of 6.8 percent year-on-year, accounting for 57.4 percent of disposable income. 

Key economic indicators in H1 2023 

Industrial value-add growth accelerates in June 

In the first half of the year, the value-add of industrial enterprises above the designated size (those with a main annual business income of over RMB 20 million (approx. US$2.79 million) increased by 3.8 percent year-on-year, 0.8 percentage points faster than that in the first quarter.

Of this, the value-add of the mining industry increased by 1.7 percent, manufacturing increased by 4.2 percent, and the production and supply of electricity, heat, gas, and water increased by 4.1 percent year-on-year.

The growth of industrial value-add accelerated in June after slowing slightly in May, increasing by 4.4 percent year-on-year, up 0.9 percentage points from the previous month. In terms of company ownership, state-owned enterprises (SOEs) performed quite strongly in the first half of 2023, with the value-add of SOEs growing by 4.4 percent year-on-year, compared to 1.9 percent for private companies.

The value-add of foreign and Hong Kong, Macao, and Taiwan-based companies, meanwhile, increased by 0.8 percent year-on-year. 

Service and consumption growth continues to slow after April peak

Total retail sales of consumer goods in the first half of 2023 reached RMB 22.76 trillion (approx. US$3.17 trillion), up 8.2 percent compared to the same period in 2022. This is 2.4 percentage points faster than the growth recorded in the first quarter of 2023. 

On the supply side, the index of services production (ISP), which measures the change in price-adjusted output of the service industry, grew by an average of 9.34 percent between January and June 2023, compared to the same period in 2022.

In 2023, the ISP peaked in April when it grew 13.5 percent year-on-year and has slowed steadily since, reaching 6.8 percent in June, down by 4.9 percentage points from the previous month.

Retail sales across a broad range of industries rebounded in the first half of 2023, including: 

• Merchandise sales, which grew 6.8 percent year-on-year to reach RMB 20.33 trillion (approx. US$2.83 trillion); 
• Catering income, which grew by 21.4 percent year-on-year to reach RMB 2.43 trillion (approx. US$338.44 billion); and 
• Online retail sales, which reached RMB 7.16 trillion (approx. US$997.2 billion), a year-on-year increase of 13.1 percent; of this, online retail sales of physical goods reached RMB 6.06 trillion (approx. US$844 billion), increasing 10.8 percent and accounting for 26.6 percent of total retail sales of social consumer goods. 

In June, the total retail sales of consumer goods increased by 3.1 percent year-on-year and 0.23 percent month-on-month. 

The value-add of service industries grew by 6.4 percent over the course of the first six months of 2023, one percentage point faster compared to the first quarter.

Largely thanks to the lifting of COVID-19 restrictions, several service industries have experienced significant rebounds in the first half of the year. These include: 

• Hospitality and catering, which increased 15.5 percent year-on-year; 
• Information transmission, software, and IT services, which grew 12.9 percent year-on-year;
• Leasing and business services, which grew 10.1 percent year-on-year; 
• The financial industry, which increased 7.3 percent year-on-year; and 
• Wholesale and retail, up 6.6 percent year-on-year. 

Strong fixed asset investment in manufacturing, high-tech

Total fixed asset investment (FAI) in the first half of 2023 reached RMB 24.3 trillion (approx. US$3.38 trillion), an increase of 3.8 percent from the same period in 2022. On a month-by-month basis, FAI increased 0.39 percent in June.  

By industry sector, the secondary industries saw the highest rise in FAI, growing 8.9 percent year-on-year, compared to 0.1 percent in primary industries and 1.6 percent in tertiary industries.

Correspondingly, FAI in infrastructure and manufacturing remained relatively strong, growing 7.2 percent and 6 percent year-on-year respectively.  

China’s property market continues to see a decline in investment, with overall investment in property development decreasing by 7.9 percent year-on-year.

Meanwhile, overall sales of commodity housing declined by 5.3 percent year-on-year by area, but total sales of commodity housing grew by 1.1 percent year-on-year. 

As has been witnessed in recent months and years, FAI in high-tech industries remains relatively high, increasing 12.5 percent year-on-year in the first half of 2023. Of this: 

• FAI in high-end technology manufacturing grew 11.8 percent year-on-year, of which:
  • FAI in the manufacturing of medical apparatus and equipment and instrumentation grew 16.8 percent year-on-year; and
  • FAI in the manufacturing of electronics and telecommunications equipment grew 14.2 percent year-on-year.
• FAI in high-end technology services grew 13.9 percent year-on-year, of which:
  • FAI professional technology services grew 51.6 percent year-on-year; and
  • FAI in services related to converting technological achievements grew 46.3 percent year-on-year (this refers to the process of developing new processes and technologies based on scientific and technological achievements, with the ultimate aim of improving productivity). 

Foreign trade accelerates in Q2 2023, imports fall

Foreign trade in the first half of 2023 reached RMB 20.1 trillion (approx. US$2.8 trillion), up 2.1 percent year-on-year.

Of this, exports reached RMB 11.46 trillion (approx. US$1.6 trillion), increasing 3.7 percent year-on-year, and imports reached RMB 8.64 trillion (approx. US$1.2 trillion), decreased by 0.1 percent year-on-year.

China’s trade surplus reached RMB 2.8 trillion (approx. US$389.97 billion).

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Looking on a quarterly basis, foreign trade reached RMB 9.76 trillion (approx. US$1.36 trillion) in the first quarter and grew by almost 6 percent quarter-on-quarter to reach RMB 10.34 trillion (approx. US$1.44 trillion) in the second quarter. 

Foreign trade by private companies accounted for 52.7 percent of overall trade in the first half of 2023, while foreign-invested enterprises (FIEs) accounted for 30.7 percent and SOEs 16.4 percent.

ASEAN remains China’s largest trade partner. In the first half of 2023, trade with ASEAN countries accounted for 15.3 percent of total trade, reaching RMB 3.08 trillion (approx. US$428.96 billion), up 5.4 percent from 2022. 

China’s second-largest trading partner was the EU, with bilateral trade reaching RMB 2.75 trillion (approx. US$383 billion), an increase of 1.9 percent from 2022 and accounting for 3.7 percent of overall trade.

Meanwhile, trade with the US declined by 8.4 percent year-on-year to reach a total of RMB 2.25 trillion (approx. US$313.37 billion), accounting for 11.2 percent of overall trade. 

The main Chinese export in the first half of 2023 remained electronic products, which accounted for 58.2 percent of total exports, up 1.4 percentage points from the same period the previous year.

Total exports of electronics reached RMB 6.66 trillion (approx. US$927.56 billion), an increase of 6.3 percent from 2022. 

Major sub-categories of China’s electronics exports include: 

• Electrical equipment, which grew 27.7 percent year-on-year to reach RMB 636.06 billion (approx. US$88.59 billion); 
• Automobiles and their spare parts, which grew 58.5 percent year-on-year to reach RMB 621.19 billion (approx. US$86.52 billion); and 
• General machinery and equipment, which grew 12.2 percent year-on-year to reach RMB 200.44 billion (approx. US$27.92 billion). 

Meanwhile, the export of labor-intensive products, such as garments and plastic products, increased by 0.04 percent year-on-year to reach RMB 1.97 trillion. Of this: 

• Clothing and accessories grew 0.7 percent year-on-year to reach RMB 516.94 billion (approx. US$72 billion); 
• Plastic products grew 3.2 percent year-on-year to reach RMB 343.42 billion (approx. US$47.83 billion); and 
• Shoes and boots grew 0.4 percent year-on-year to reach RMB 172.93 billion (approx. US$24.08 billion). 

China’s steady post-pandemic recovery 

The 5.5 percent half-year growth rate is on-target for the full-year target of “around 5 percent” in 2023.

In addition, the 6.3 percent year-on-year GDP growth seen in the second quarter marks a significant improvement from the 4.5 percent growth in the first quarter and suggests recovery has gained momentum in certain key fields. 

However, the economy nonetheless faces a number of hurdles if it is to maintain this growth in the second half of 2023.

First, although the 6.3 percent rate recorded in the second quarter was considerably stronger than the first quarter, this figure actually falls below Reuter’s projected rate of 7.3 percent.  

Moreover, despite posting strong economic indicators across various industries in the first half of 2023, the monthly growth rates indicate that recovery has slowed significantly in May and June. Consumption, in particular, has fallen off since peaking in April when retail sales reached 18.4 percent year-on-year growth. In June, growth had slowed to 3.1 percent year-on-year.

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Meanwhile, economic growth is currently heavily state-led, as can be seen from the higher growth in value-add by SOEs compared to private companies and FIEs. Although SOEs have an important role in areas such as infrastructure investment, increasing the output of private companies – who are China’s main employers – will be key to sustaining longer-term growth. 

Finally, foreign trade has slowed due to decreasing demand in key overseas markets, in particular the US and Europe. 

It is also important to note that H1 2023 data is affected by the low base effect as a result of the unusually low growth rates recorded in the same period in 2022. This is due to the fact that the first half of 2022 saw severe COVID-19 outbreaks, which led to the locking down of many parts of the economy. This can be seen particularly strongly in the services sector and consumption indicators – two areas that saw very low or even negative growth in April and May 2022. While the base was still relatively low in June 2022, it has recovered considerably from the previous two months, which partly explains the change in economic indicators from April to June 2023. 

What to expect in H2 2023 

Following the release of the May 2023 economic data, the government has hinted that it may release a stimulus package to see the economy across the line in the latter half of the year.

As we have seen, the slowing growth seen over the last few months indicates that the economy may need some more impetus in order to maintain momentum and reach the 5 percent GDP growth target at the end of the year. A recurring State Council meeting on June 16 called for “more forceful measures […] to enhance the momentum of development, optimize the economic structure, and promote the continuous recovery of the economy”, and said that the State Council has researched a series of policy measures covering the following areas: 

• Increasing the intensity of macro-policy regulation; 
• Focusing on expanding effective demand; 
• Strengthening and optimizing the real economy; and
• Preventing and defusing risks in key areas. 

The upcoming July Politburo meeting, which is expected to focus on the economy, may provide insights into the country’s policy direction going into the second half of the year. It is widely expected that policy measures will be released following this meeting. However, the scope and voracity of such measures remain uncertain, as the Chinese government has generally adopted a prudent approach to fiscal and monetary stimulus. 

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