How to Revive China’s Economy in 2023 | An Interview with CKGSB Professor Liu Jing

February 06, 2023


China’s economic growth in 2022 suffered significant setbacks due to the COVID-19 restrictions and a tumultuous global geopolitical environment. In 2023, with the easing of restrictions, there is a great opportunity to revive the economy.

But what will drive China’s economic recovery in 2023? What tactics are needed to revitalize China’s corporate sector? And how can the country enhance income and boost consumption?

CKGSB’s Professor of Accounting and Finance, Liu Jing, was interviewed by Sohu Finance, to gauge his insights on China’s economic outlook in 2023.

1. What do you think the economic growth target should be in 2023?

I anticipate the economic growth target to be around 5%. However, it may be set a lower, around 4%. As you know, China’s economy grew by around 3% in 2022, making this year a significant challenge.

With the easing of China’s zero-Covid policy, the overall economic environment is improving. But in the short-term this will not come without downward pressure. The economy might need to go through a recovery cycle in the first quarter.

2. Consumer decision making is not only influenced by purchasing power but by the willingness to spend. Given that China’s current savings rate is relatively high, what strategies can be implemented to boost consumption and drive economic growth in 2023?

The problem with consumption in China is two-fold: First, there are short-term economic shocks including the pandemic and 2022 amendments such as the Anti-Monopoly Law and adjustments to real estate policy.

The second is that China’s economic policy has been heavily tilted towards investment and manufacturing, resulting in a decline in household income and purchasing power. A prime example is China’s land policy, where local governments often set low prices for industrial land but impose high land transfer prices for residential land. This inevitably brings down consumption as high property prices reduces consumer spending power.

It is crucial to understand that consumer behavior is not exclusively determined by cash on hand. Other factors play an important role such as consumer confidence and expectations for future income – lower expectations can decrease consumer spending. Stimulating economic growth is not as simple as distributing money to consumers.

3. What is your opinion on the effectiveness of policies aimed at boosting consumption, such as the consumption voucher scheme versus direct cash transfers to consumers?

Right now it’s not necessary to adopt these policies. We could, however, consider other strategies such as tax relief, particularly for low-income groups. One example could be offering tax relief or even tax exemptions for young people who have recently entered the workforce and earn an annual salary of less than RMB 70,000- 80,000.

The distribution of money to consumers has the potential to lead to inflation. This has been the case in the United States, where high inflation is a direct result of the Federal Reserve’s previous quantitative easing measures.

4. Small- and medium-sized enterprises (SMEs) have been severely hit by the pandemic. What measures do you think should be taken to effectively restore economic growth and to support the recovery of small businesses?

The government have always supported SMEs. But the problem lies in the role of private enterprises in the economy as a whole.

China has three types of enterprises: private, state-owned, and multinational corporations. The proportion of multinational companies in China’s economy is currently relatively stable with minimal short-term fluctuations. However, in recent years the status of private enterprises has shifted, and have they less access to resources.  

Five years ago the private sector was growing exponentially. At that time corporations had large funds as well as access to bank loans and capital market financing. Over the last few years, however, obtaining bank loans has become more difficult for private enterprises and hindered their growth.

To boost private enterprise growth we need to provide them with greater access to resources and a more favorable market environment. Private enterprises are known for their high efficiency and their capacity to generate substantial profits and employment opportunities. Without a thriving private economy, employment may decline.

5. What are your thoughts on how fiscal policy can drive China’s economic growth in 2023?

For China to accelerate its economic development, the private economy must be developed, state-owned firms must be reformed to improve their efficiency, and the market must be allowed to play a major role in the overall economy. Consumer confidence, which is closely tied to China’s development, also can be boosted by focusing on economic growth and continuous reforms.

China’s past investments has been heavily focused on physical infrastructure such as bridges, roads, and airports, which has outstripped the growth of other parts of the country’s economy. Going forward we need to invest more in software infrastructure. This will be critical to enhance innovation and develop core technological capabilities.

Translation source: (Originally in Chinese)

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