China growth target hangs in balance while economists cut forecasts

BEIJING – China will just about meet its economic growth target of around 5 per cent for 2023, the latest Bloomberg survey shows, although

the ongoing property crisis

is raising the risk of a miss.

The economy is projected to expand 5 per cent in 2023, according to the median estimate in a new Bloomberg survey of 78 economists – a 10 basis point downgrade from an earlier poll, with analysts citing property as the biggest challenge for the nation. 

“The real estate sector will continue to be under mounting pressure” despite recent government efforts to support property, said analysts at Poseidon Partner, a Hong Kong-based investment firm. “We expect to see players who racked up debt in the past to continue to suffer.”

The economist survey coincides with new research from Bloomberg Economics that suggests the “around 5 per cent” growth goal is still possible, though not a sure bet. They estimate the probability of an undershoot at 18 per cent.

“The drag from the property slump, fragile sentiment and widespread debt stress in the corporate sector could well knock the economy onto a lower trajectory,” wrote economists Chang Shu and Andrej Sokol in the Tuesday report. They project gross domestic product will expand 5.4 per cent in 2023.

HSBC Holdings, Morgan Stanley and Citigroup are already predicting growth of under 5 per cent in 2023, with HSBC cutting its forecast this week to 4.9 per cent from 5.3 per cent.

Data from August signalled some of the drags on the economy may be bottoming out, with the drop in exports easing and official surveys of manufacturing activity edging closer to the line above, which indicates expansion.

Credit also grew more than expected, potentially suggesting some stability in household demand for mortgages as the authorities work to bolster the real estate market. 

The upside surprise from those figures has lowered the probability that China misses its official growth target from 32 per cent in July to less than a fifth in August, according to Bloomberg Economics.

But there is still uncertainty, especially when it comes to the housing market. A housing rally in the nation’s biggest cities has already lost momentum, according to home sales data.

“Targeted support has yet to filter through more convincingly into the property market data,” said ABN Amro senior economist Arjen van Dijkhuizen.

The property crisis is by far China’s biggest challenge, according to a separate survey. Seventeen of the 21 economists polled by Bloomberg named “real estate” as the top issue. Three mentioned the economic slowdown, and one pointed to a confidence crisis in the nation.

Asked about an ongoing slump in housing sales, 15 of the 21 economists in that survey said they think home purchases will continue falling until at least the beginning of 2024. 

Professor Li Daokui, a former adviser to the central bank, said the property market could take as long as a year to recover, urging Beijing to do more to encourage lending to developers to halt the spread of defaults.

While sales in large cities could return to growth sooner, it may take as much as a year to record “good recovery” in smaller cities, he told Bloomberg News recently.

In a research note this week explaining their downgrade, HSBC economists including Dr Jing Liu wrote: “The drag from property has yet to fully abate, while external weakness will continue for some time.

“To prevent exacerbating structural imbalances, policymakers are refraining from unleashing a ‘sugar rush’ of policy support.

“That said, fiscal and monetary support measures continue to be implemented, but will likely need time to have a larger impact.”

Other findings from the Bloomberg survey revealed an unchanged forecast for growth in 2024 at a 4.5 per cent year-on-year expansion. BLOOMBERG