A quiet renaissance amid domestic challenges

Despite a backdrop of domestic challenges – ranging from a significant restructuring of the real estate market to subdued consumer confidence – China managed to record an impressive 5% economic growth in 2024. This resilient performance is particularly striking, given the current global uncertainties. In fact, over the past decade or so, China’s economic output has contributed nearly 30% to worldwide growth. Commentators both in China and abroad have thus espoused a narrative of a country that has managed to turn adversity and internal challenges into opportunity – both for itself and for other nations.

Global trade and diplomatic outreach

China’s evolving role on the world stage is perhaps most visible in its approach to international trade and investment. The nation has increasingly positioned itself as a key architect of global economic diplomacy, extending its influence far beyond traditional trade practices. The Belt and Road Initiative (BRI), launched in 2013, stands as a striking example of this ambition. With participation from over 140 countries by 2025, the BRI has grown into much more than a series of infrastructure projects; it represents a grand vision for global connectivity. By 2022, China had invested over £800 billion in BRI projects – investments that have spanned railways, modern ports, and energy infrastructure across Asia, Africa, and Europe. Such vast financial commitments underline China’s determination to cement its economic influence far beyond its borders.

In a similar vein, the Regional Comprehensive Economic Partnership (RCEP) has further bolstered China’s international clout. Coming into effect in 2022, this free trade agreement, now the world’s largest, binds 15 countries together and accounts for roughly 30% of global GDP. The RCEP has significantly enhanced market access for Chinese products and reduced tariffs, thereby strengthening ties with countries across Southeast Asia. With ASEAN now standing as China’s largest trading partner, surpassing even the European Union and the United States, it is clear that Beijing’s economic diplomacy is carving out new avenues of global cooperation.

Export competitiveness and technological prowess

At the heart of China’s global strategy lies its remarkable export performance. In 2024, Chinese goods exports grew by 7.1% year on year, reaching an astounding 25.45 trillion yuan (£3.23 trillion). Moreover, the overall foreign trade value hit a record high of 43.85 trillion yuan (£5.57 trillion). Such staggering figures illustrate not only the sheer scale of China’s export market but also its rapid evolution from traditional manufacturing to a more sophisticated, technology-enhanced export economy.

Key sectors have driven this transformation. Machinery exports, which have grown by 8.7%, now account for nearly 60% of total exports. High-tech products, ranging from electric vehicles and 3D printers to industrial robots, have seen rapid expansion, reflecting a deliberate shift towards innovation and quality. In addition, the burgeoning cross-border e-commerce sector has reached a value of about 2.63 trillion yuan (£334 billion), underscoring the digital transformation of global trade.

Fuelling growth with outbound investment

China’s ambitions extend well beyond its borders. In 2024, the nation’s outbound foreign direct investment (FDI) surged to an impressive $189.1 billion (£151 billion). These outbound investments have been strategically directed towards sectors such as technology, renewable energy, and infrastructure. Many of these investments are aligned with the BRI, reinforcing China’s commitment to fostering international economic cooperation. Major recipient countries, ranging from Brazil and Mexico to Saudi Arabia, Egypt, Indonesia, and South Africa, have benefited from China’s robust capital outlay, which is not only driving economic growth in these regions but also deepening global ties.

Speaking at the “1+10” dialogue in Beijing with heads of 10 international economic organisations in December 2024, Premier Li Qiang said that China supports international economic organisations and will actively undertake international obligations commensurate with its capabilities, and work with all sides to promote sound and steady development of the world economy.

This sentiment resonates deeply with nations across continents, emphasising that China is not simply a recipient of global admiration, but an active shaper of the international economic order.

Innovation, AI, and the digital future

Perhaps nowhere is China’s commitment to future technologies more evident than in its rapidly advancing high-tech sectors. With sustained innovation propelled by both the private sector and robust government support, China has become a global leader in fields such as renewable energy, electric vehicles, and AI. The rapid deployment of 5G networks and the development of smart cities are only the beginning; China’s tech giants and start-ups alike are pioneering solutions that promise to revolutionise industries far beyond its borders.

AI has emerged as a particularly dynamic area of development. Companies like DeepSeek have recently captured international attention, symbolising China’s growing prowess in both AI research and practical applications. Meanwhile, innovative firms such as Minimax and Moonshot are making significant inroads into consumer applications, while organisations like ModelBest push the boundaries of upstream AI research.

Renewable energy and the green transition

As climate change continues to dominate global discourse, China has positioned itself at the forefront of the renewable energy revolution. According to the International Energy Agency, Chinese exports now account for 35% of the global renewable energy equipment market outside of China, a share that is expected to grow further as demand for sustainable solutions intensifies. Over the past year, China exported 120 gigawatts of solar panels – a 15% increase over 2023 – alongside 80 gigawatts of wind turbines, representing a 10% rise. Additionally, battery exports surged by 20% to reach an output of 50 gigawatts, while electrolyser exports increased by 25% to a total of 30 gigawatts.

These achievements underscore Beijing’s dual commitment to driving economic growth and tackling environmental challenges head-on. “China’s investments in renewable energy are not only pivotal in the fight against climate change, but they are also creating vast new economic opportunities,” explains Aisha Rahman, an energy policy adviser with the United Nations Environment Programme (UNEP). “This green transition is a critical element of China’s strategy to lead the global economy into a more sustainable future.”

The electric vehicle (EV) sector provides another compelling illustration of this commitment. In 2024, China’s domestic market for new energy vehicles reached a striking 48% share, with sales exceeding 12 million units. Leading domestic manufacturers, such as BYD, captured a commanding 34.1% of the market, while international players like Tesla maintained a modest 6% share. Furthermore, more than a million EVs were exported, a success story bolstered by strategic outbound investments in both vehicle production and battery technology.

Navigating geopolitical tensions

No discussion of China’s evolving economic role would be complete without addressing the geopolitical challenges that lie ahead. The protracted trade dispute with the United States continues to cast a long shadow over bilateral relations. Despite various diplomatic efforts, tariffs on Chinese goods remain a sticking point for industries ranging from electronics to agriculture, prompting Beijing to diversify its trade partnerships and actively seek new markets.

Technological competition further complicates the picture. With the United States imposing restrictions on key Chinese tech firms, Beijing has been forced to ramp up investments in domestic research and innovation. In many ways, the tech restrictions imposed by the United States have spurred a wave of ingenuity and self-reliance within China. It is a classic case of adversity fuelling innovation, which has a knock-on effect both in China and around the world.

Political conflicts, too, remain a persistent challenge. Issues surrounding Hong Kong, Taiwan and the South China Sea have elicited varied international responses – from sanctions to cautious diplomatic overtures. These disputes, though complex and often contentious, are being managed through a combination of strategic negotiation and economic diplomacy, reflecting China’s long-term commitment to securing its place as a global leader.

The promise of digital and green economies

Looking forward, the future for China’s economy appears as promising as it is challenging. On one hand, the nation is poised to capitalise on the exponential growth of its digital economy, a sector expected to contribute more than half of China’s GDP by 2025. Innovations in e-commerce, fintech, and digital infrastructure are opening new avenues for business and fundamentally transforming the way commerce is conducted on a global scale. “China’s digital economy is not just a driver of domestic growth; it offers a glimpse into the future blueprint of global commerce,” comments an industry insider familiar with emerging trends.

At the same time, Beijing’s commitment to green technology offers a beacon of hope in the global fight against climate change. Continued investments in renewable energy, electric vehicles and energy efficiency are expected to generate significant economic dividends, while simultaneously addressing pressing environmental challenges.

The road ahead: A balancing act

As China continues to redefine its role in the global economy, it faces the formidable challenge of balancing domestic imperatives with international ambitions. The nation’s outward investments in infrastructure, technology, and renewable energy are a testament to its desire to lead on the global stage. Yet these efforts are accompanied by the need to navigate trade disputes, manage technological rivalries, and address complex political conflicts – a balancing act that will require both deft diplomatic manoeuvring and a steadfast commitment to innovation.

In conclusion, China’s evolving role in the global economy is a story of transformation, resilience, and ambition. From robust export performance to strategic outbound investments, China is not merely adapting to a changing world; it is actively shaping it. Through pioneering advances in artificial intelligence, renewable energy, and electric mobility, Beijing is crafting a future that promises economic prosperity and a more interconnected, sustainable world.

As the international community navigates the uncertainties of a rapidly evolving economic landscape, one fact remains indisputable: every infrastructure project built, every technological breakthrough achieved, and every trade partnership forged is a clear sign that China’s influence is set to expand further. The coming years will undoubtedly bring both challenges and opportunities, but the transformative journey of China’s economy will continue to reshape the global order for generations to come.

The 2025 UK-China Business Forum on March 5th is a full-day conference focused on the theme of UK-China partnerships and the opportunities for growth in both markets through export and investment.

During the morning session, the Forum will explore how to develop these opportunities, analysing both the benefits and challenges from a practical point of view, with senior businesspeople sharing their valuable insights through real-life case studies.

In the afternoon, the Forum will examine four key areas:

• Ageing populations require a different approach to healthcare, with more focus on prevention rather than cure, there is huge scope for UK-China academic and business collaboration.
• The Chinese consumer, amongst which there is undoubted interest in UK brands, where engagement is built on cultural relevance and emotional connection.
• Smart transport solutions, which have the potential for tremendous benefits, both for the UK as a whole, as well as for businesses and their employees.
• Green transition, an area where China and the UK are both looking for wins, and where there is potential for cooperation and growth in both markets.

The event will be followed by CBBC’s Spring Reception.

Click here for more information and to register for the UK-China Business Forum

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This puts China on track to achieve its growth target of around 5% as revealed by Premier Li Keqiang during the Two Sessions in March. Nevertheless, the National Bureau of Statistics acknowledged that the “external environment is becoming more complex”, posing a threat to stable economic growth. Last year, the Chinese economy grew 5.2%.

Some analysts have attributed to the Q1 growth to industry, with industrial production up 6.1% compared to a year ago, boosted by strong growth in high-tech manufacturing for products such as electric vehicle (EV) charging stations and batteries. Chinese automakers have stepped up expansions into new overseas markets, with BYD alone exporting over 240,000 cars in 2023, according to Reuters.

Disappointing retail sales – despite two major national holidays in this period –show that China is still experiencing weak domestic demand. This is likely caused by the ongoing crisis in the property sector.

New home prices fell at the fastest rate in more than eight years in March, and sales fell 23.7%. The scale of the crisis was underlined in January when a Hong Kong court ordered the liquidation of the world’s most indebted developer, China Evergrande Group.

Economists told the Financial Times that since growth is in line with official targets, further economic stimulus measures are unlikely, but others say that more stimulus is still needed to shore up demand.

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The Q3 figure was above analysts’ expectations of 4.5% growth, but below the 6.3% growth seen in the second quarter. On a quarterly basis, China’s GDP grew 1.3%, accelerating from 0.5% in the second quarter.

Despite growth exceeding expectations, the National Bureau of Statistics (NBS) commented that the ‘outside environment’ is growing increasingly ‘complex’, that domestic demand remains insufficient, and that ‘growth needs to be further consolidated’.

Over the past week, the NBS also released more economic data for September and the first nine months of the year, including both good news and bad.

Retail sales — a gauge of consumption — grew 5.5% year-on-year, up from 4.6% in August, and above analysts’ expectations of a 4.9% rise. Tourism and consumption revenue from the National Day Holiday “Golden Week” in October may push this figure up in the fourth quarter results, but consumer confidence is still not rebounding as quickly as hoped, likely due to widespread concern about troubles in the property market.

As such, the consumer price index showed no change in prices, and the producer price index (PPI) fell 2.5% year-on-year — marking 12 straight months of decline. This indicates ongoing deflationary pressures and weak demand for goods and services in China’s economy.

Exports dropped 6.2%, easing from 8.8% in August and above analysts’ expectations. This improvement was due to low base effects and it being peak export season for Christmas products. Statistics show that in recent months, China has been exporting four containers of goods for each container it imports (for comparison, this figure was 2.7 prior to the pandemic).

Industrial output of everything from electric vehicles to chemicals grew 4.5%, the same as August, beating analyst predictions. The improvement has been driven by increased financing for factory construction and infrastructure projects. The government has also been pushing capital spending in areas such as high-tech manufacturing.

Analysts told Reuters that these data results show that China’s stimulus measures, though piecemeal, are broadly having an effect, and that fewer stimulus measures should be expected in the final quarter as China is on track to achieve its annual growth target.

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The takes on China’s economy from media and analysts in 2023 comes across like a Dickens reading list: there have been Great Expectations, ample descriptions of Hard Times, and now – to stretch the wordplay a little – many pessimists are calling it a Bleak House.

But is everything really doom and gloom? This article will take a closer look at the course China’s economy has taken so far in 2023 through a selection of eight charts.

Gross domestic product

China’s disappointing GDP growth so far has been blamed on many factors: poor domestic and international demand, a property market slump, low consumer confidence and geopolitical tensions. Nevertheless, National Bureau of Statistics spokespeople have rightly pointed out that China’s GDP grew an aggregate 5.5% year-on-year in the first half of 2023 – making it the fastest-growing among major economies. But despite the NBS’s bullishness, many financial institutions have lowered their GDP growth predictions for the remainder of 2023. Economists polled by Bloomberg have cut their estimates from 5.2% to 5.1%.

Inflation

China’s falling CPI is mostly due to low consumer demand and confidence – which stems from the poorly performing property sector, general economic malaise, and the damage caused by years of severe pandemic controls. Instead of the “revenge spending” that had been predicted, Chinese consumers have been locking up their savings while waiting for the economy to improve. The country’s low PPI, on the other hand, is due to weak domestic and global demand for Chinese goods and materials. It’s also due to a higher base for comparison because global commodity prices soared after Russia’s invasion of Ukraine in 2022.

The resulting deflation has the effect of delaying many consumers’ purchases and investments – especially in houses, cars, and travel – as they wait for prices to stop falling. Deflation also increases the real value of debts. However, there are reasons to believe China’s deflation may be temporary. July’s fall involved one-off factors such as the price of food, particularly pork prices. The same month, China’s “core inflation” – or inflation without volatile items such as energy and food – actually rose from 0.4% to 0.8%. Analysis by BNP Paribas also suggests that China’s economic fundamentals do not meet the typical conditions for lasting deflation, including a contracting money supply, significantly flagging demand, and a consistent loss in confidence.

Manufacturing purchasing manager’s index (PMI)

Manufacturing PMI is an economic indicator representing the rate of expansion or contraction in the manufacturing sector. A result of above 50 implies expansion, while a result below 50 implies a contraction. It is calculated through surveys completed by managers, and focuses on variables like output, new orders, employment, supplier delivery times, and inventory levels. It is an important metric for China because manufacturing accounts for a third of its economy by value.

The spike in manufacturing PMI earlier in the year was probably due to the initial momentum caused by the lifting of Covid-19 controls in December 2022, as well as factories fulfilling a backlog of late orders that had not been completed due to 2022 disruptions, while the subsequent depression in manufacturing orders has been mostly due to low global and domestic demand.

Non-manufacturing/service purchasing manager’s index (PMI)

Non-manufacturing PMI is an official index that covers services and construction. Its readings and data are similar to manufacturing PMI, with a reading of 50 implying neither growth nor contraction. Caixin’s equivalent is the Service PMI, which does not include construction.

Both indices rocketed in January, reaching a peak in March. The growth of both indices has been helped by a boom in catering, entertainment and hospitality since the relaxation of Covid-19 controls. However, the growth of both indices has slowed since March, and services PMI softened even further in August, despite it being the first post-pandemic summer season, and in spite of record railway sales and a strong box office performance at cinemas. This indicated a weak performance in the travel industry and a possible consumer shift towards lower-priced services.

Exports and imports

Weak foreign demand – due to inflation – and falling purchases of electronic products are the main reason for the declining exports, which has hampered China’s recovery. This overall decline in exports is not unique to China and has been plaguing other economies as well. Weak external demand has also put downward pressure on China’s imports, since many are materials used to manufacture goods for export. Weak consumer demand and China’s struggling property sector have also played a role. However, both imports and exports showed some signs of stabilisation in August, beating analyst’s expectations.

Youth unemployment

China’s youth unemployment rate rose to a record high of 21.3% in June 2023, breaking the previous record high of 20.8% recorded in May, after which point the government announced it was temporarily suspending the publication of figures.

China’s general economic challenges mean that many companies are retaining older, more experienced staff and not hiring. Young people are generally vulnerable during economic downturns because they have less work experience. Moreover, many among China’s record numbers of university graduates have degrees such as sports and education that don’t match the needs of China’s current employment market – and they don’t necessarily want to engage in certain types of work they consider physically challenging or demeaning.

Young people are big spenders, so unemployment is likely to be sapping domestic consumption growth, and some analysts argue that high youth unemployment risks destabilising society by causing anger and resentment.

New house prices

The year-on-year change in the price of new houses plummeted in 2022 due to China’s real estate crisis, bearing in mind that many new houses are pre-sold prior to completion. The decline in new house prices narrowed in the first couple of months of 2023. The rate of increase then slowed sharply in May – leading to fears that pent-up demand was already fading – and prices then fell again in June and July.

China’s gargantuan real estate sector is of immense importance to its economy – and even has an impact on the world economy. It is estimated to contribute up to a third of national GDP. It could also have a major impact on the solvency of financial institutions, besides the parlous state of real estate companies themselves. Unfortunately, many reports and analyses suggest that China’s property downturn is far worse than the numbers suggest, with house prices falling by double digits in some areas this summer. The comparatively rosy government figures are likely to be a misleading owing to their survey-based data collection method.

Retail sales

China’s retail sales statistics measure the total value of goods sold to consumers within a month, providing useful insights into consumer confidence and consumption trends ahead of GDP data releases.

China’s retail sales appear to have been boosted by post-Covid ‘revenge spending’ to some degree – as predicted – but a reduction in retail spending since April points to falling demand as a result of depressed consumer confidence. That being said, a sector-by-sector breakdown shows that sales in many areas were robust in July:

• Online retail sales grew 12.5% year-on-year
• Catering revenue grew 15.8% year-on-year
• Retail sales of grain, oil, and food increased by 5.5% over the same period
• Retail sales of beverages went up by 3.1% relative to the same month in 2022

In 2023, the Chinese economy has presented a complex tableau, influenced by myriad domestic and international factors. As the eight charts underline, there have been moments of resilience, particularly in certain sectors of retail, juxtaposed against challenging trends like youth unemployment and a wobbly property market. The growth in GDP, despite being adjusted downward by analysts, still makes China the fastest-growing of the major economies. However, concerns around deflation, faltering consumer confidence, and an unsettled real estate sector indicate underlying vulnerabilities.

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Although lower than the expected growth forecast between 6.7% and 7% in Q2, China’s 6.3% annual growth rate in April to June suggests that the world’s second-largest economy is continuing to heal. Nevertheless, a consensus appears to have been reached amongst economists: post-Covid momentum is faltering. The question of whether consumption can be further boosted will be key if China is to follow the trajectory of hitting its 5% full-year growth target.

Analysts from institutions including Huatai Securities, China Minsheng Bank and Zhixin Investment Research Institute believe that these figures could represent a “high point” for consumption figures due to holidays such as the May Day holiday, Dragon Boat Festival and 618 (China’s second-largest mid-year online shopping festival) driving consumption.

Much like the pattern of economic recovery, domestic consumer demand shows a bittersweet picture. Total retail sales of consumer goods in the country reached RMB 22.75 trillion (£2.47 trillion) in the first half of 2023, a year-on-year increase of 8.2%. This is reported to have contributed to 77.2% of the overall economic growth, with officials touting the efficacy of the country’s economic stimulus.

Among the sectors leading the rebound are the culture, tourism and catering industries, while categories such as automotive, jewellery and sports and entertainment are also regaining vitality, recording annual growth in May of 24.2%, 24.4% and 14.3%, respectively.

Despite consumer confidence gradually resuming, China’s record-high youth unemployment rate of 21.3%, coupled with a more cautious consumer cohort, will cast clouds over the country’s spending power in the months to come. In a McKinsey report published earlier in July, the tendency to consume lower-priced products or purchase through discounted channels was found to have remained high among Chinese consumers.

Describing sentiment in China as “cautiously optimistic”, Daniel Zipser, Senior Partner at McKinsey & Company’s Shenzhen office who leads Asia Consumer & Retail Practice and authored the July report, added that this doesn’t necessarily mean that Chinese consumers are willing to sacrifice high-end brands. The bounce back of luxury consumption in the first half of 2023 is evidence of that observation, where China has been labelled “a core contributor” to revenue growth for global luxury conglomerates, including Prada and LVMH.

International brands, meanwhile, have been regaining market share in China as the country has reopened, particularly in the categories of sportswear, beauty and infant formula. China reclaimed its title as the largest market for the Japanese beauty brand Shiseido in the second quarter. Sports giant Adidas also reported that sales in China increased by 16% in Q2 to EUR 766 million, after a consecutive decline in the past eight quarters. Several product lines have gained favour amongst Chinese consumers over the past six months, including the Cool Touch series created by Adidas’ Asia Creative Centre, as well as the X Crazyfast customised football shoes endorsed by Chinese female footballer Tang Jiali, which was released on the eve of the FIFA Women’s World Cup.

“[Consumers] want trade-up, they want to buy better products but they are not saying ‘let’s get them from a cheaper brand’. Instead, they look during the promotional seasons; they turn to different channels … for example, they are moving to livestream platforms as we found in the survey, because that’s where they find low-price-based deals”, says Zipser.

This situation means that businesses should be prepared to react to different scenarios for both mid-term and long-term prospects, Zipser tells Dao Insights. That means diversifying their plans to engage the market during the current uncertainty while also being ready to take agile actions in response to the “positive outlook” in the near future, especially considering that the percentage of China’s upper middle class (defined as households with an annual disposable income of over RMB 160,000, or £17,377.17) is expected to grow to 52% by 2025 from 41% in 2022, according to projections by McKinsey Global Institute Insights China.

Zipser also pinpointed travel scenarios as an avenue to further unleash consumption potential as tourism continues to regain traction. This would be of particular benefit to high-end brands, providing consumers with a “treasure hunting” retailing experience as they explore the world while serving as a sustainable solution for businesses to mitigate seemingly contradictory consumer psychologies.

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On Thursday, 10 August, Country Garden, one of the few major developers in China to avoid bankruptcy in recent years, issued a profit warning. The next day, its shares fell to record lows, affecting the wider property sector; the Hang Seng Mainland Property Index fell 1.49% the same afternoon. On Monday, 14 August, Country Garden delayed payment on a private onshore bond for the first time.

On Thursday, 17 August, Zhongzhi Enterprise Group – a major Beijing-based asset manager with considerable exposure to the property sector that has a reported RMB 1 trillion (£108.5 billion) in assets – told investors that it needs to restructure its debt. It had already been missing payments on dozens of financial products. Reuters reported that Zhongzhi had hired one of the Big Four accounting firms to audit it.

The same day, China’s property giant Evergrande, which defaulted in 2021, filed for bankruptcy protection in New York. It was also informed by China’s securities regulator that it is being investigated for suspected disclosure violations.

On Friday, 18th August, two Hong Kong-listed property developers, Yuzhou Holdings and Sino-Ocean Group Holdings, announced significant losses for the first six months of the year. Nikkei Asia reported that Yuzhou cited an “unfavourable macro environment and the downturn in the real estate industry”.

Concerns about property contagion – which then extended to the financial economy due to Zhongzhi’s troubles – led several global financial institutions to cut their China growth forecasts for the year. Morgan Stanley, for example, cut its estimate from 5% to 4.7%.

SCMP reported that the Japanese financial services company Nomura gave an unusually pessimistic assessment in a new research report on China, warning that “slumping home sales may lead to a rising number of developer defaults, a sharp contraction of government revenue, falling demand for construction materials, declining wages of employees in the property and government sectors, weaker consumption and faltering financial institutions.”

China has already started to act to shore up the economy, including a 10-basis-point cut in its one-year benchmark lending rate on Monday. The small size of the cut may reflect concerns by the authorities about bank profitability – a key factor in preserving financial stability.

Nevertheless, Nicholas Spiro, a partner at Lauressa Advisory, a London-based real estate and macroeconomic advisory firm, told SCMP that while China’s property sector woes are serious, their potential impact on global markets should not be overstated and that China is highly unlikely to be facing a “Lehman moment”, a sentiment echoed by many other analysts in the industry.

This is partly because state ownership provides banks in China with a degree of protection against problems in other parts of the financial market. Moreover, in contrast to the West, Beijing tends to allow state-owned banks and other financial entities to help absorb troubled companies.

Photo by Karl Groendal on Unsplash

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Although China’s post-Covid economic recovery has been remarkable, recent figures have fallen short of expectations.

The country’s economy is experiencing deflation for the first time since early 2021. The consumer price index fell 0.3% year-on-year in July, while the producer price index dropped 4.4%.

Imports and exports also fell faster than expected in July. Imports dropped 12.4% year-on-year, considerably worse than analyst predictions of a 5% fall, while exports fell 14.5%, also steeper than the expected 12.5% decline.

These figures have prompted various government departments to take measures to combat the slowdown. On Thursday, 3 August, the Ministry of Public Security (MPS) issued 26 guidelines to promote “high quality development” and the “free movement” of people, vehicles and data in China. As yet, the guidelines are just that, but the MPS’s deputy head of research has said that they are making all efforts to put them into action by the end of the month.

The guidelines include a milestone relaxation of hukou, or household registration, restrictions. This will allow millions of urban residents that still have a rural hukou to switch to an urban hukou, granting them improved access to housing, education and healthcare – and likely unlocking more of their spending power. Restrictions will vary based on city size:

• Cities with a population of under 3 million (hundreds of cities) will completely cancel all hukou restrictions
• Cities with a population of 3-5 million (20 cities) will relax hukou restrictions
• Cities with a population of over 5 million (19 cities) will relax their quotas and ease the points-based system for permit applications

The MPS has also emphasised the need to streamline the provision of government services by cutting red tape, moving more services online, and making services accessible across regional jurisdictions, particularly in the Guangdong-Hong Kong-Macau Greater Bay Area.

Perhaps most notably for FOCUS readers, the guidelines prominently feature measures to allow foreign businesspeople travelling to China for business activities on short notice to apply for a business visa on arrival, rather than having to obtain one before travelling. In addition, people who need to travel to and from China multiple times for commercial business reasons will be permitted to apply for a valid three-year multiple-entry business visa after entering the country. Foreigners will also be allowed to keep their passports when applying for residence permits.

The guidelines also include recommendations for traffic management, vehicles and logistics, including measures to boost spending on consumer goods such as electric and second-hand cars, relax rules on driving licence exams, and enable pilot programmes to set up security service companies.

Many regions of China will also be implementing concrete local policies in line with the MPS’s guidelines. One province even did so before the announcement came out.

In July, the eastern province of Zhejiang announced that it would eliminate hukou limits in urban areas and allow residence permits to be recognised between cities. This policy came into effect on Tuesday, 1 August, two days before the government announcement.

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Several recent Reuters analyses, including from CBBC’s former policy analyst Joe Cash, suggest that China’s economy has lost some momentum at the start of the second quarter of 2023.

Economic figures for April, while often reaching double figures, fell below the estimates of economists polled by Reuters. Industrial output grew 5.6% year-on-year, below an estimated 10.9%, although exports exceeded expectations by 0.5%, growing by 8%. Retail sales, used as a gauge of consumption, grew 18.4% year-on-year, falling short of a predicted 21%.

It should be noted that these figures are skewed by the negative impact of anti-Covid lockdowns in April last year.

One area that has shown on-target growth is online retail sales, which rose 8.6% year-on-year to RMB 3.29 trillion (£376.7 billion). Short video platforms Douyin and Kuaishou in particular saw massive growth, with China Skinny reporting that their combined sales in Q1 of 2023 were 97% of the value of sales on Tmall, with fashion and personal care and cosmetics demonstrating particularly high merchandise values.

Analysts expect that the government will start to take a more proactive approach in ensuring that the country’s post-Covid recovery remains stable, such as cutting interest rates. The government has already announced plans to boost employment and trade as it tries to meet its modest economic growth target of about 5% in 2023 after missing last year’s goal.

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This ambition was reiterated by Guo Tingting, Vice Minister of Commerce, at the first press conference of the new year hosted by China’s Ministry of Commerce on 2 February. While the strategies presented are yet to be put into action, they quickly created a more optimistic mood, with rating agency Fitch announcing on 8 February that it had revised its China growth forecast to 5% for 2023. This was raised from 4.1% previously, reflecting “the evidence that consumption and activity are recovering faster than initially anticipated” following the country’s sudden reopening in late 2022.

Naming 2023 “The Year of the Consumption Reboot”, Chinese local authorities pinpointed industries that would be at the forefront of driving the domestic economic recovery, including the automotive, home furnishings, household appliances and catering sectors.

Emphasising the priority of new sales of cars of all kinds, Xu Xingfeng, head of the Department of Market Operation and Consumption Promotion at the Ministry of Commerce, also signalled support for incentivising purchases of vehicles powered by renewable energy, as well as improving relevant services such as licence privileges and charging infrastructure for electric vehicles (EVs)

This, to some extent, is expected to offset the pessimism that has emerged in the automobile industry in recent years, especially amongst electric car makers at home, as the government pulled the plug on a more than decade-long subsidy for EV car buyers, which took effect on the first day of 2023.

Xu also hinted at the government’s intention to push the circulation of the second-hand car market while paving the way for a transformation of the industry’s business model. The market focus would be shifted to the usage rights of vehicles instead of ownership as it is now, suggesting vehicle rental services is a market on the horizon.

While the automotive industry is a sector mature enough to be a part of the backbone of China’s economic revival, the government also seeks to unleash the potential held within the country’s emerging home furnishings and household appliances market, with smart home automation believed to be at the core.

China’s smart home sector recorded a market value of RMB 515.5 billion (£62.91 billion) in 2020 according to China’s National Industry Information Research, with an estimated annual growth rate between 15% and 25% in the coming five years. The tech-savvy post-90s generations have unsurprisingly become the main consumers of smart home products, although some older adults also appreciate the convenience this sort of product affords. This is in line with China’s growing so-called “Lazy Economy”, as well as the pursuit of a higher standard of living among the younger generations.

As the smart home industry gains traction, the Chinese government has introduced measures to stimulate purchases of green smart home appliances, sweetening the deal to encourage sustainable consumption, which is also a step prompted by a more environmentally conscious consumer cohort.

While beefing up efforts to reboot manufacturing sectors, the government also sees opportunities flourishing in the catering industry, as well as the wider retail and hospitality landscape. This confidence is based on the overall 6.8% year-on-year increase in revenue reported by relevant businesses following the Spring Festival (Lunar New Year) holiday season, which concluded in early February. This is the first Lunar New Year in three years where travellers did not have to follow any Covid-19 prevention protocols. China’s reopening, therefore, will be of most immediate benefit to those market players who rely heavily on physical consumer engagement.

Meanwhile, the government is also determined to leverage digital technologies to pull off its economic goals. E-commerce and live streaming have become flagship sectors of the Chinese economy, an ongoing phenomenon that has only been accelerated by Covid-19. Indexes including accumulated numbers of live stream sessions, active live streamers, total viewer numbers and products sold through live streams all increased exponentially in 2021 and 2022.

As China gears up to reboot its economy, there are growth opportunities for both traditional and emerging industries. While the exit from the zero Covid policy marks the resumption of offline businesses, the country’s consumption models have been reshaped by prolonged lockdowns, resulting in the rise of e-commerce and other online experiences. Market players, therefore, are expected to offer a more diverse approach to engaging their target audience in China and ultimately, gaining a slice of China’s economic revival.

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China’s economy grew by 3% in 2022 according to data from the National Bureau of Statistics, with H2 activity improving on the 2.5% growth in H1. While much higher than the figure recorded by the UK, this growth rate marks one of China’s worst annual performances in nearly half a century.

At the regional level, the GDP figures generally reflect the degree of impact of the zero covid policy (now a thing of the past) on each region, in addition to other factors including exports and real estate.

Beijing grew by 0.7% after experiencing heavy disruption from zero covid. Restrictions tightened ahead of the 20th Party Congress in October and then tightened further as the virus spread in November.

Shanghai’s economy contracted by -0.2% for the year, reflecting the severity of the lockdown from March to June. The city’s GDP fell by -13.7% in Q2 with Q3-4 activity failing to recover the drop.

Former heavy industry giant Jilin fared worse, contracting by -1.9% after also experiencing heavy disruption from zero covid in early 2022. Jilin’s GDP was also ultimately unable to recover from the -7.9% contraction in Q1.

However, things were not all doom and gloom. Shandong (3.9%), Fujian (4.7%) and Jiangxi (4.7%), three provinces which avoided the worst of zero covid disruption, grew significantly above the national average. These provinces perhaps give an indication of the levels of growth we can expect in 2023 (the IMF is currently predicting the Chinese economy will grow by 5.2% in 2023).

Two of China’s biggest provincial economies, Guangdong and Jiangsu, grew by 1.9% and 2.8%, respectively. These figures were significantly lower than in 2021 when growth was 8% for Guangdong and 8.6% in Jiangsu around or above the national average of 8.1%.

Jiangsu was directly impacted by the Shanghai lockdown (as was much of East China) with GDP contracting in Q2 by -1.1%. However, growth was able to recover back to within the range of the national average.

Guangdong, which has remained China’s largest province by total GDP for the last 34 years, experienced sporadic lockdowns throughout 2022, with Shenzhen experiencing lockdown in H1 and Guangzhou in H2.

Hainan (0.2%) and Tibet (1.1%), two of China’s smallest provinces in GDP terms but biggest tourist destinations, were hit by lower visitor numbers due to the wider zero covid impact on domestic travel. Hainan has also seen real estate prices fall by some of the highest levels in China.

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