Goldman Sachs has revised its forecast for China's GDP growth, projecting an increase to 4.9% for 2023, up from a previous estimate of 4.7%. This adjustment follows the Chinese government's announcement of new measures aimed at bolstering economic growth, including increased public spending.
The bank also raised its GDP growth expectation for 2024 to 4.7%, previously 4.3%. Economists at Goldman Sachs noted that the latest stimulus efforts indicate a policy shift towards greater focus on economic recovery.
Chinese equity markets experienced volatility as trading resumed, with the yuan's losses against the dollar easing after a drop of up to 0.3%. Finance Minister Lan Feng'an announced that 2.3 trillion yuan (approximately $325 billion) from local government bonds will be utilized in the fourth quarter, signaling a push for increased public expenditure.
Additionally, the National Development and Reform Commission stated it would pre-approve 200 billion yuan (around $28 billion) in investment projects for the next year by the end of this month, part of efforts to achieve a growth target of around 5% for 2023.
Goldman Sachs estimates that these easing measures could contribute an additional 0.4 percentage points to next year's growth, compensating for a projected 1.9-point decline due to slowing exports and ongoing challenges in the real estate sector.
In response to economic concerns, officials have pledged to enhance support for businesses, including unspecified measures to assist unicorn startups valued over $1 billion. The market regulator has promised to address excessive fines imposed by some officials to offset revenue losses.
Despite these efforts, Goldman Sachs cautioned that structural challenges persist in the Chinese economy, maintaining its forecasts for 2026 and beyond. The bank highlighted three long-term issues: demographic decline, debt reduction trends, and risks in global supply chains, which are unlikely to be resolved by the recent policy measures.
The global economic focus now shifts to the scale of financial support China will deploy to revive its struggling economy and how much of this funding will directly benefit consumers. Finance Minister Lan Feng'an has not provided clear answers regarding these points but indicated that approximately $300 billion remains unallocated.
China's economic recovery remains uncertain, particularly in the real estate sector, with little sign of imminent relief. Recent increases in property visits and transactions in major cities suggest some recovery efforts may be taking effect.
Private sector investment is stagnant, and consumer confidence has yet to rebound from pandemic lows, raising concerns about a potential deflationary spiral similar to Japan's experience.
In late September, the People's Bank of China cut interest rates, aiming to boost economic sentiment. However, a recent press conference failed to sustain market momentum, leading to declines in mainland and Hong Kong stock indices.
Finance Minister Lan has promised new measures, including temporary increases in borrowing limits for local governments, allowing them to convert infrastructure-related debts into government-backed loans. He stated that unspent borrowing proceeds will be directed to local governments to meet immediate spending needs.
Economic experts emphasize the necessity for coordinated stimulus efforts across government agencies to effectively rejuvenate the economy, as traditional monetary and fiscal policies alone may not suffice.
Recent data indicated a 0.4% rise in consumer prices in September year-on-year, while producer prices fell by 2.8% during the same period.