The worst period of growth since 1976, a declining population, a trade war with the world’s largest economy, workers protesting testing companies that don’t pay wages, and hundreds of millions of people infected with Covid in one month.
Recent news from China is far from optimistic, but the year 2023 is far from lost. With the opening of the economy after the abandonment of the Covid-zero policy and the backlog of orders due to the logistical problems of recent years, the Chinese economy could grow strongly in 2023, even if some structural problems limit the country’s economic potential in the long term.
The Chinese economy grew 3% in 2022, after 8.1% in 2021 and 2.3% in 2020. The average growth of 3.8% in this three-year period is the lowest since the beginning of the economic reforms. The growth target for 2022 and the coming years is 5.5% and there is a great risk that it will not be reached in 2023, although there is no risk of recession.
For this year, the main barriers to Chinese growth are the real estate market, the shattered accounts of local governments, the reticence of Chinese consumers and trade restrictions imposed by the Americans. Even so, a strong economic recovery is possible, at least for this year. There are two main reasons for this: urbanization and productivity growth.
It’s hard to imagine, when we see the futuristic buildings of a Shanghai of almost 30 million inhabitants, which are 500 million Chinese who technically live in the countryside. Every year, between 12 and 20 million Chinese move from the countryside to the city or, more commonly, see their farms become urban areas.
The multiplier effect of this monstrous infrastructure effort alone ensures that the country grows by around 2% a year. This effect is expected to continue for at least another 20 years, and is the main reason why China was one of the only economies in the world that did not have negative growth in 2020.
In the wake of this quantitative growth of urban centers comes the increase in productivity. The 35% of Chinese in the countryside produce only 7% of Chinese GDP. The moment a Chinese person moves to the city or the city comes to him, his productivity more than triples. And the Chinese economy as a whole is in a process of technological escalation.
Intensive sectors in work of little added value; in plain English, trinkets, are shrinking, while industries with greater technological content do not stop growing. The idea of the Chinese worker working for a pittance has not been true for over a decade. The minimum wage in China’s poorest province, Liaoning, is R$1,100, while in Shanghai it is R$2,000. And in the industry, no one earns minimum wage.
Today, Chinese factories have been paying bonuses to industrial workers, as unemployment in these categories is virtually zero. The biggest problems are in the areas of services and workers with medium and high schooling; the market has not been absorbing new graduates with the same tenacity as in the past.
With the reopening of the economy, the question for this year is: will we see the appetite for investments for domestic consumption as in the years before the pandemic? It’s still too early to tell, as the first big wave of Covid isn’t over yet and the Chinese New Year festivities start next week. During this period, the country basically comes to a standstill, and companies only start working at full steam again in March. There is a chance that the economy will return in the year of the rabbit that begins Saturday, but it is also possible that the economy will not hit the target of 5.5% for this year.
The big question is: is the period of high Chinese economic growth over and should we expect the economy to grow between 2 and 4%, like developed economies, or can we see a decade of booming growth of 5 to 6% a year? There is no way to know for sure, but it is possible that the level of growth will slow down. China is already an upper-middle-income country with high social inequality.
With geopolitical problems and the world economy growing slowly, a scenario of China developing more slowly than in the past is likely. But the average Chinese worker still only produces 25% of the GDP of an American worker. Space to grow is not lacking. Given the size of the Chinese economy, there is a tendency to overestimate the importance of China in the short term. But we cannot underestimate the importance of the Chinese economy in the long run.
A quick recovery in 2023 brings many benefits to the world, especially to Brazil. But it is China’s long-term development that will have a much greater impact. Declining population or not, Chinese development can multiply the current demand for Brazilian products many times over. Hitting the target of 5.5% in 2023 matters. But a rich and developed China matters much more.
With a wealth of experience honed over 4+ years in journalism, I bring a seasoned voice to the world of news. Currently, I work as a freelance writer and editor, always seeking new opportunities to tell compelling stories in the field of world news.
