China: Committed to economic recovery centered on domestic demand


■ In January and February, China's main economic indicators confirmed that production and consumption activities were recovering after the transition to the COVID-19 policy
■ The National People's Congress set the goal of steady growth, and also indicated the policy of promoting the expansion of domestic demand

  Yesterday, China released its main economic indicators for January-February. Industrial production (up 2.4% year-over-year), retail sales (up 3.5% year-over-year), and fixed assets investment (excluding rural areas, up 5.5% year-over-year since the beginning of the year) have all shown stronger growth since December last year. It has been confirmed that production and consumption activities are recovering after the COVID-19 Policy. Financial statistics show that the growth rate of money supply (M2, up 12.9% year-over-year) and social loan balance (up 9.9% year-over-year) in February has accelerated compared with January, resulting in an increase in the number of loans. Monetary circulation and credit expansion also indirectly indicate the activity of economic activities. However, according to the trade statistics from January to February, since last October, exports (down 6.8% year-over-year) and imports (down 10.2% year-over-year) have continued to be lower than the previous year's level. In terms of commodities, the export of integrated circuits (IC) and the import of semiconductor manufacturing equipment fell sharply. In terms of regions, export to Europe, the United States, and Japan fell. In addition to the sluggish overseas demand, the United States, Europe, and Japan also considered restricting the export of cutting-edge products such as semiconductors due to the observation of the balloon problem, which constituted an obstacle to trade activities.
  The National People's Congress (NPC) was held from March 5 to 13. The government activity report on March 5 announced the economic goals and policies for 2023. "Expanding domestic demand" was listed as the most important policy, indicating that the policy position changed from "stabilizing the macro economy" last year to focusing on the economy. The real GDP growth target is set at about 5.0%, lower than the previous year (about 5.5%). In accordance with the basic principle of "seeking progress while maintaining stability" determined by the Central Economic Work Committee, we will promote a "moderate" monetary policy and a "positive" fiscal policy. The target for budget deficit (ratio to nominal GDP) is 3.0%, which exceeds the target of the previous year (2.8%). Although the economy will be boosted by increased spending, the growth target remains cautiously around the potential growth rate. Since the real GDP growth rate in 2022 has not reached the target, it can be seen that the government's goal is to achieve reliable and stable growth under the new leadership. When the possibility of an economic downturn increases due to factors such as overseas economic slowdowns, early support is expected.
  Due to the normalization of economic activities after the transition to the COVID-19 policy, production and consumption are now recovering strongly. However, once production resumes to the end, production is expected to slow down due to the decline in overseas demand and the purchase restrictions of advanced parts. On the other hand, with the support of extended household demand and policy support, domestic demand is expected to remain strong for the time being and promote economic recovery.