Gyeonggi Province Expected to Grow 5% This Year... Private Consumption Up, Exports Down

Real Estate, Expected Weakening of Downturn Severity

[Image source=Yonhap News]

[Asia Economy Reporter Seo So-jeong] China's economy is expected to grow nearly 5% this year, higher than last year, driven by a recovery in private consumption following the reopening (resumption of economic activities). China's economic recovery is anticipated to gain momentum in the second half of the year.

The Foreign Exchange Operations Department of the Bank of Korea stated last month in the 'Global Economic Conditions and International Financial Market Outlook' report, "As the Chinese government ended its zero-COVID policy earlier than the market expected and the reopening is underway, the infectious disease is spreading rapidly."

The market had expected a full reopening around the National People's Congress (NPC) in March, when the leadership transition in China would be completed. However, due to economic slowdown and protests against strict quarantine policies, the Chinese government announced on the 7th of last month a policy easing quarantine measures, including clarifying quarantine zones, reducing the frequency and scale of polymerase chain reaction (PCR) tests, and allowing self-isolation for asymptomatic and mild cases.

Park Soo-yeon, head of the Foreign Exchange Operations Department at the Bank of Korea, said, "The infection rate in China is still only 0.1% of the total population, the vaccination rate among the elderly is low, and medical capacity is significantly insufficient," adding, "Considering these factors, the economic recovery is likely to accelerate in the second half of the year."

In particular, private consumption, which had been most affected by quarantine policies, is expected to lead the economic recovery as it increases mainly in the service sector. However, compared to advanced countries, it may take longer for consumption expansion to become visible. Park explained, "Given China's relatively long lockdown period, limited government income support to households, and the high proportion of time deposits with low liquidity in household savings, it may take time for these funds to convert into consumption."

The real estate sector, which performed poorly last year, is expected to see a less severe downturn this year due to the Chinese government's extensive support measures to stabilize the real estate market. At the Central Economic Work Conference held last month, the Chinese government maintained its stance that 'housing is for living,' but emphasized risk prevention for financially sound real estate companies, indicating an expansion of support for the real estate sector.

On the other hand, exports are expected to slow significantly due to decreased demand from the global economic slowdown and the reduction of China's comparative advantage following the normalization of global supply chains. Last year's unemployment rate rose to 6.1% in April during the full lockdown of Shanghai, but this year, with the reopening, employment recovery in the service sector is expected to accelerate, lowering the rate to the low 5% range, according to the report. Consumer prices this year are forecast to rise slightly to the low 2% range due to gradual economic recovery, compared to 2.1% last year.

Park added, "Unlike advanced countries, China's labor market conditions are not tight, so rapid wage increases following reopening are unlikely, and real estate prices are expected to continue declining," adding, "Producer prices are also expected to see slower growth due to the resumption of supply chains and the global economic slowdown."